New rules are first step in ESG journey for trustees, says PLSA

New rules that will change the way pension schemes take account of environmental, social and governance (ESG) factors are the first step of the journey not the end result, the Pensions and Lifetime Savings Association (PLSA) has stated.

The changes – that come into force tomorrow (1 October) – mean that trustees will be required to outline their approach to engagement and voting of their shares in investee companies, as well as including ESG and climate change considerations in their investment decision making. 

The rules state that trustees of DB and DC occupational pension schemes with more than 100 members must have set out in their Statement of Investment Principles (SIP) how they take account of financially material factors, including ESG factors and climate change. 

The changes reflect DWP’s 2018 updates to the Occupational Pension Scheme (Investment) Regulations 2005. Implementation of the EU’s Shareholder Rights Directive II (SRD II) led to further changes to the Investment Regulations published in June 2019, which will require both DC and DB schemes to publicly disclose information on issues including use of proxy advisers and how they incentivise their asset managers to align investment strategies and decisions.

Caroline Escott, Policy Lead: Investment & Stewardship, PLSA, said: “Tomorrow marks a key milestone for pension schemes and how they take account of ESG considerations when making decisions, as well as how they act as good stewards of the savings entrusted to their care.

“The PLSA supported DWP’s work to better help trustees consider ESG and stewardship approaches, but we must remember that this is the start of the regulatory journey and not its final destination. Trustees must continue to work with their advisers and managers both to implement ESG and stewardship approaches across their portfolio, and to consider how best to talk about these issues with scheme members. This will be important if they are to meet the next set of 2020 regulatory deadlines, as well as those coming down the track in 2021.

“Over the past few years there has been an explosion in the number of ESG products in the market, but schemes must remain vigilant. Trustees should work with their advisers to do the proper due diligence to differentiate between those asset managers who are walking the walk on ESG and stewardship and those who are just greenwashing.”

To read the PLSA’s ESG and Stewardship guidance for trustees, click here or to read the PLSA More Light, Less Heat guidelines on how to consider climate risk specifically, click here.

Mark Smith, Senior PR Manager
 020 7601 1726 |  [email protected]k

Steven Kennedy, PR Manager
 020 7601 1737 | 07713 073024 | [email protected]