The Department for Work and Pensions (DWP) has launched a consultation on proposed changes to pension scheme trustees’ investment duties, focussing on environmental, social and governance (ESG) concerns and members’ views.

ESG Concerns

The DWP propose a new requirement that a scheme’s statement of investment principles (SIP) includes an explanation of “financially material considerations” in its preparation, including ESG.  Currently, ESG matters must only be detailed if considered.  This confirms the DWP’s view of the importance of ESG, although the reference to financial matters confirms that investment return remains key.

Statement of members’ views

The DWP also propose requiring trustees to prepare a statement accompanying the SIP, outlining to what extent the views of scheme members (including those on non-financial matters) will be factored in when either preparing or revising the SIP. “Non-financial matters” includes ethics, social impact and present and future quality of life.

Continuing importance of investment duties

The consultation stresses that ultimate responsibility for investments lies with the trustees, and is to be no obligation on them to base their decisions on any specific concerns raised by members.  In certain instances, the DWP suggests trustees may use their knowledge of the members as a whole to make assumptions about their views.

What does this mean for trustees?

The DWP’s proposals could alter the way in which trustees make investment decisions, while offering helpful guidance on how trustees are expected to factor ESG matters into their decision-making.  The DWP has targeted Autumn 2018 for revised regulations to be laid before Parliament, with any new requirements potentially coming into force as early as 1 October 2019.

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