Why should DC pension schemes consider ESG and SRI (x 12!)

December 13th, 2017

12 points from our response to the DWP consultation into ‘where DC schemes invest’

The following points are a boiled down version of our response to the DWP’s recent consultation on the topic of: ‘Where DC pension schemes invest’.

Most importantly – and by means of an introduction – it is important to say that we very much welcome this consultation…

SRI Services and the Fund EcoMarket ‘friends and supporters’ * who attended our meeting with report Author David Farrar, support the view that DC pension scheme members should have access to significantly better information about where their money is invested – and believe that improving transparency would bring significant benefits.

1. Openness and transparency enhance trust and can improve member engagement.
2. We believe ESG/SRI/responsible ownership has a role to play in helping members to connect with their investments (‘member engagement’) as it spans the divide between ‘real life’ and investment.
3. Greater awareness of the wider social and environmental implications of where we invest can contribute to better outcomes for members in retirement.
4. Supplying members with text based information that sets out the wider goals, aims, preferred areas of investment, example holding and any intended impacts would help to encourage greater member involvement (and investment).
5. Pension schemes should aim to reflect government policy in key area such as climate change in order to accelerate progress. (Example areas of desirable alignment include the Cabinet Office/ DCMS’ Social Investment work, BEIS’ Green Finance work and the government’s support for the Paris Climate Agreement & the TCFD.)
6. No schemes should ignore ESG issues.  Members should always be offered additional ‘ethical’ options.
7. All schemes (ie trustees and plan sponsors) should be required to cover ESG/SRI/stewardship strategies in their documentation. It may be that the SIP document is the right place for this – but it is equally possible that this could sensibly sit elsewhere.
8. The existing Statement of Investment Principles, ‘SIP’ SRI/ESG disclosure requirements have been in force since 2000 but have not permeated to individual member level – so disclosure on request (ie without appropriate flags) – has not proven to be sufficient.
9. The relevant wording of the SIP disclosure requirements should be strengthened to obligate the proper consideration of SEE/ESG issues by trustees and scheme sponsors.  This should be on a ‘comply or explain’ basis – and explicitly reference climate risk.
10. SEE /ESG information should form part of the RFP process as well as regular information supplied to members (via links).
11. We would support the development of a standardised template for ‘where schemes invest’ (whilst recognising this should be supported with additional information and links).
12. We recognise that trustees will need support in this area and believe that there are various ways in which members of the financial services community that care about ethical, social and environmental issues can help make this more manageable.

*Rathbones, Sarasin & Partners, Phil Castle IFA, PLSA (noting that others could not attend due to short timescales).

This meeting followed an event kindly organised by the Transparency Task Force