Defined Contribution  

Schemes to consider members ESG views when investing

Schemes to consider members ESG views when investing

Defined contribution pension schemes will need to consider their members’ views on ethical investing, according new guidance from The Pensions Regulator.

The watchdog has published an update of its DC Investment Guidance, responding to new regulations from the Department for Work and Pension which will come into force from October 2019 and October 2020.

Pension schemes with more than 100 members will be forced to disclose the risks of their investments, including the ones arising from ESG, later this year.

In the guidance, TPR stated it wasn’t expecting DC schemes to consult with members on every aspect of their investment preferences, but trustees of these pension funds may wish to consider members’ representations about their preferences.

“If you believe there is a chance the wider membership would support a proposed ethical investment position, you might conduct a member survey before adopting or rejecting the proposal,” it stated.

When it has decided the suggested proposal won’t present an additional risk of significant financial detriment to members, the scheme can adopt it as part its investment principles.

Aside from surveys, trustees of these schemes could use other methods of gaining members’ views, such as setting up a member panel (for larger schemes) or running focus groups of forums, TPR added.

The watchdog guidance has been updated to reflect the changes to legislation for DC schemes, which mandates that trustees must make the statement of investment principles – a scheme’s investment strategy - available free of charge on a website from October 2019.

From October 2020, trustees must produce an implementation report which explains how they followed and acted on the investment policies outlined in the statement of investment principles.

David Fairs, executive director of regulatory policy, analysis and advice at TPR, said good governance and the management of investment risk in pensions schemes was fundamental to providing savers with a good retirement.

He said: “Climate change is a core financial risk which trustees will need to consider when setting out their investment strategy. They will be obliged to show how they are taking this and other financially material considerations into account over the lifespan of investments.

“This guidance provides updates as well as clarity for trustees, including considerations when planning scheme investments.”

Pensions minister Guy Opperman noted that pension schemes have a significant part to play in tackling the climate emergency.

He said: “They should be thinking about how they can meet the long-term interests of their members by driving new investment in important sectors of the economy – helping to deliver sustainable environments, jobs and communities.

“I welcome The Pension Regulator’s updated guidance, which follows the government’s game-changing regulations clarifying and strengthening pension scheme trustees’ ESG responsibilities.”

maria.espadinha@ft.com

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