ESG amendments to give govt ‘unprecedented new powers’

She said key issues, such as how the new rules would interact with existing SIP legislation, are yet to be clarified by regulation.

While the new amendment leaves some questions unanswered it would apply to all occupational pension funds, including defined benefit, and come with hefty fines for non-compliance - £5,000 in the case of an individual, or £50,000 in any other case.

Penny Cogher, partner at Irwin Mitchell, noted the amendments were “fairly simply drafted, and there is scope for the Secretary of State to issue formal guidance", but added that "what will alarm trustees and scheme manages is the ‘stick’” of penalties from the Pensions Regulator.

She added: “These amendments are a natural development of the new laws on ESG that came into force last year, with the focus firmly on climate change and its impact on scheme investments and investment strategies.

“They are also in line with the views of the many of the public who do want parliament and pension schemes to move ahead more quickly on helping to tackle climate change issues.”

However, Sophia Heathcoat, client strategist at Cardano, questioned whether this legislation was the best way to implement these changes.

She said: “What we need to make sure is that this doesn't just become a tick box, something else they need to add to their to-do list. There is also going to be a cost to providing this disclosure."

Arguing that the government has sought to put pressure on investors rather than take action directly at a corporate level, she asked: “Is that the best street to take? Shouldn’t there be further climate disclosure requirements in corporate accounting standards instead, that would then give pension schemes the ability to see what the climate impact is?”

Ms Heathcoat also noted such a requirement would need a clear and standardised approach, so that “the disclosures being made are helpful, impactful, but also comparable.

“You don't want a set of disclosures where trustees, investment consultants or managers have different interpretations,” she added.

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