PLSA seeks views on new responsible investment quality mark for pension schemes

The Pensions and Lifetime Savings Association has opened a consultation on a new Responsible Investment Quality Mark (RIQM), intended to recognise pension schemes that meet the highest standards for incorporating environmental, social and governance (ESG) factors across their operations.

The RIQM has been developed amid an evolving regulatory environment and a momentum shift in public and industry attitudes towards climate change and ESG.

Last year pension schemes were required for the first time to publish an ‘implementation statement’ to disclose their voting behaviour and how they have delivered against their stewardship strategy.

From October 2021, funds over £5bn will be required to report against standards set by the Task Force on Climate-related Financial Disclosures (TCFD) on how they are considering the impact of climate risk on their investments.

Despite these regulatory changes, a survey of more than 2,000 UK adults commissioned by the PLSA last year found there remains a lack of understanding among savers as to how pension schemes are taking action against climate change, for instance. Three-fifths of workplace pension holders (59%) said they don’t know if schemes are taking any action; just one in seven (15%) workplace pension holders think schemes are.

The PLSA has focussed for several years on supporting schemes in their endeavours to implement Responsible Investment principles and practices. For pension schemes, our latest initiative, the Responsible Investment Quality Mark, provides:

• a new standard to which schemes can aspire,
• the opportunity to share best practice among schemes, and
• a scheme member-focussed way to demonstrate activities in this area.

For savers, the RIQM accreditation is intended to serve as an at-a-glance assurance that schemes bearing the RIQM logo are performing well against a broad range of standards across their operations, without having to wade through scheme literature in search of the relevant report or regulatory disclosure.

The proposed assessment process will require schemes to meet minimum standards across seven areas: understanding the needs and interests of their beneficiaries; governance; investment strategy; oversight of stewardship; risk management; the use of metrics and targets; and communication and engagement. Against each of these areas, schemes will be required to provide supporting evidence.

For schemes that are acting in ways that exceed best practice, we are also proposing an RIQM Plus accreditation. This will be available to schemes where they are demonstrating industry-leading practice.

The PLSA has a track record spanning more than a decade of assessing and accrediting pension schemes. The Pension Quality Mark recognises high quality pension schemes and employers that have high contribution levels, good governance and encourage members and employees to save for their future.

As with the Pension Quality Mark, compliance with the RIQM standards will be undertaken by a combination of internal PLSA staff and expert external assessors, with all decisions subject to potential review by the independent Pensions Quality Mark Standards Committee.

The RIQM is intended to be accessible for pension schemes of all types and all sizes with an assessment approach designed to respond intelligently and flexibly to the scale and resources of the relevant scheme, so that not only the largest and best resourced schemes will be able to qualify.

The proposed standards and information about how to respond to the consultation, which closes on Friday 3 September, are available via the PLSA website.

The PLSA is committed to supporting schemes to implement best practice on all ESG matters and has been involved in a number of initiatives to support improved understanding and disclosure in the pensions industry. Practical ESG guidance and the 2021 Stewardship and Voting Guidelines are available for schemes to download on the website. In 2020 the ‘A Changing Climate’ report made recommendations to address barriers to wider adoption of climate-aware investing.

Joe Dabrowski, Deputy Director of Policy, PLSA said: “Some pension funds are already deeply engaged in achieving Responsible Investment. However, this is a highly complex area so many others are looking for ways to approach the issue. We hope that by creating a new Quality Mark we can both recognise existing best practice and help other schemes understand and develop it.

“Pension funds produce lots of differing documentation to evidence how they are integrating ESG and stewardship across their scheme, but in most cases this information is designed to meet regulatory requirements and is quite hard for most savers to find and interpret. Those schemes that meet our new standard will be able to display a stamp of approval that savers can easily trust and identify with.”

Andy Cheseldine, Chair, Pensions Quality Mark Standards Committee said: “The focus of the Standards Committee is to drive pensions best practice across schemes of all shapes and sizes. Encouraging all schemes to achieve best practice in responsible investing is an essential part of good governance, stewardship and will also help to tackle the climate crisis. We believe the RIQM will help us do that and look forward to hearing views from the industry through the consultation period.”

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

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