In the May edition of Vision, we covered the hot topic of ESG. This continues to be a fast-moving area in the pensions industry, with industry bodies focusing on this through guidance and regulation as well as pension scheme providers increasing focus on incorporating key issues. There have been further updates from the Pensions Policy Institute (PPI), DWP and Financial Conduct Authority (FCA).
The PPI’s Engaging with ESG series now turns its attention to ‘broad ESG issues’. This report notes that climate change is, and continues to be, an important factor but that other Environmental issues as well as Social and Governance issues are important. Interestingly, a survey undertaken by NEST indicated that Social factors were more important to its investors.
As with its ‘Engaging with ESG: Climate Change’ report published in February 2021, the PPI’s latest report identified a number of continued barriers to integrating ESG, including quantity, quality, and consistency of data.
The conclusions of how to improve engagement in this area were also consistent with its earlier report, however the PPI added that:
On 8 June 2021, the DWP responded to its consultation on climate change regulations and guidance.
The response largely re-affirmed the proposed changes, in particular the requirement for trustees of occupational pension schemes to meet, and report on annually, the governance requirements underpinning the recommendations of the Taskforce on Climate-related Financial Disclosures. This requirement will be phased in, with larger schemes (with relevant assets under management of £5bn or more at the end of the first scheme year ending on or after 1 March 2020) being required to adopt it from October 2021 and produce their report within 7 months of their scheme year end date. The requirement will apply to schemes with £1bn or more in assets from the following year.
The report will need to be made available online.
Following this, the FCA has commenced consultation to introduce equivalent reporting requirements to asset managers, life insurers, and FCA-regulated pension providers. This will help to align contract-based pension schemes with the requirements above on occupational pension schemes. It will also assist trustees in being able to gather the required information from asset managers and providers in order to meet their duties.
It is proposed that final rules will be published by the end of 2021 and come into force in early 2022.
ESG and particularly climate change, remain high on the agenda of the many facets of the Government. It is important for all pension schemes to keep up to date with regulatory duties, but to also ensure that their scheme investments align with:
Trustees should identify when the new disclosure requirements will apply to them and begin to prepare for these.