Pensions  

Minister to lead task force on ‘social factors’ in ESG

Minister to lead task force on ‘social factors’ in ESG
Pensions minister Guy Opperman to head ESG taskforce. [Source: Parliament official portrait]

Pensions minister Guy Opperman has announced a new taskforce to help trustees monitor data and international reporting developments as they pertain to the ‘S’ in environmental, social and governance considerations.

Acknowledging that trustees face difficulties as a result of the increasing scope and shifting definitions of the ‘S’ in ESG, it proposed the creation of a minister-led taskforce to assist schemes in better incorporating social considerations in their ESG strategies.

This was one of the outcomes of an earlier call for evidence in March, when the government wanted to understand consideration of social risks and opportunities by UK pension schemes.

At the time, the government said it was particularly keen to learn whether trustees’ policies and practices with regard to ‘social factors’ were “sufficiently robust,” and whether the government needed to aid trustees in meeting their legal obligations.

But the government’s response, published today (July 15), contained no new policy suggestions, holding that “it is up to schemes to determine how to consider financially material social risks and opportunities”. 

This was evidenced by the government’s response to the question of integrated vs standalone policies concerning social risks and opportunities, with the Department for Work and Pensions reiterating that schemes should include all elements of ESG, “to the extent these are considered by the trustees to be financially material, in so far as it is practical”.

It said having an integrated approach combining all ESG considerations was "an acceptable approach to take,” and standalone policies separating out ESG risks was “also an acceptable approach to take".

It added it was “up to trustees to decide how to factor in financially material social risks and opportunities as appropriate for their scheme”.

It did, however, aim to convey the DWP’s thinking on a number of areas, including trustees’ legal duties, the primacy of fiduciary duty when considering social factors, how social factors should be accounted for, and where they constitute opportunities as opposed to risks.

The new taskforce

The response mentions three broad areas in which the taskforce might provide assistance.

The first is the identification of “reliable data sources and other resources, which could be used by pension schemes to identify, assess and manage financially material social risks and opportunities; and which could be used to inform guidance on investment risks from social factors”.

The second would provide a steer on the monitoring and reporting of developments with the International Sustainability Standards Board and associated international standards.

The third area would look at the ESG implications of the war in Ukraine, especially with regard to the defence and nuclear sectors.

The response took care to clarify that the new body would not be equivalent in scope or in power to the Taskforce on Climate-related Financial Disclosures, as “it would be difficult to set up a taskforce of this scale for social factors in the UK”.