Pensions, SRI, ESG and Stewardship

Pension schemes are increasingly bringing ‘sustainable, responsible and ethical’ investment considerations into their strategies and fund options.

Some schemes place a significant focus on the financial benefits of considering issues such climate risk,  supply chain management and corporate governance,  others look for ways to reflect the personal values and goals of scheme members.  Many do both.

This area is now firmly regarded as relevant to pension schemes with recent regulatory changes (reporting requirements) going live from October 2019.   (See PLSA article link below)

Fund EcoMarket offers the option to find (unit linked) ‘Pension’ fund options via the ‘Product’ filter field. We collect fund specific information for primary fund entries (OEIC and SICAV) but have recently added a link to the database which now populates (primary fund) information into the relevant linked pension (and life) fund entries of the same name, allowing users to ascertain screening, thematic and stewardship policies and practices. Adviser downloads available here.

The following sources help explain trustee obligations and recent developments:

• DWP consultation March 2021 on Social Risks and Opportunities for occupational pension schemes
• October 2019 (DB & DC)  Trustee changes explained:  PLSA – The year ESG became mainstream
• IGC consultation 201: PS19/30 Independent Governance Committees: extension of remit
• Dept for Work & Pensions: Environmental Social Governance (ESG) and responsible investment (Speech) 6 June 2019
• Interim government response to Law Commission review of Pensions & Social Investment Dec 2017
• Current (November 2017) DWP consultation into costs, charges and investment. (End date 7 December 2017)
• The Pensions Regulator – Trustee support March 2017
• Law commission review into pensions and social investment SIP (Statement of Investment Principles requirements:
• The Pension Regulator – ‘Guide to Investment Governance‘ (for pension trustees)
• Resource and Environment Practical Guide for Pension Actuaries_2017
• Nest ethical and responsible pension fund information.
• UKSIF guide – Understanding and applying fiduciary duty

Some key terminology briefly explained:

• SRI: ‘sustainable and responsible investment’ – funds that combine environmental, social and/or ethical issues with financial aspects when deciding where to invest and relationships with investee companies (e.g. voting).
• ESG: investments that bring ‘environmental, social and governance’ issues into consideration often as part of their risk management strategies.
• Stewardship: responsible ownership strategies that typically involve fund managers engaging with companies (including voting shares) to encourage better management of environmental, social and governance issues.

Please note – fund and fund manager strategies vary. Read fund details for further information.

Statement of Investment Principles (SIP)

Most pension schemes are required by law to produce a Statement of Investment Principles.  Since July 2000 SIPs have been required to disclose:

• the extent to which, if at all, the scheme takes account of social, environmental or ethical considerations when taking investment decisions; and
• the use of rights (including voting rights) attached to investments