The Government’s Taskforce on Social Factors (TSF) has made 30 recommendations on the how UK pension schemes can better incorporate social factors into their investment decisions.
These proposals, contained in a guide, published today, are now open to industry consultation which will close on 1 December.
The TSF, which was set up by the Department for Work and Pensions, includes representatives from the pensions industry, asset managers, data providers, cross-industry collaboration groups and civil society. It was set up with the aim of helping schemes address the risks and seize the opportunities of the “social” element in ESG investing.
The social factors under consideration range from workforce conditions and supply chains to community engagement, consumer protection and modern slavery.
The guide outlines how pension trustees can better consider and incorporate these factors into their investment and stewardship decision-making, by developing a common understanding and assessment of financially material social risks and opportunities.
The guide makes more than 30 recommendations across different stakeholders in the pension sector including:
- Pension schemes: Pension trustees should ensure their asset managers consider social factors and integrate them into their investment strategy and stewardship. The paper provides example RFP questions and mandate terms.
- Regulators: The DWP should consider formally setting out expectations on addressing social factors, while the FCA should consider setting out reporting expectations, alongside those required for environmental factors.
- Asset managers: Asset managers should be able to demonstrate that they have influenced social outcomes through transparent reporting on engagement, voting and investment outcomes, including any social investment metrics.
The TSF is requesting feedback on its recommendations from across the industry, including pension scheme trustees, asset managers, regulators, government, data providers, investment consultants, lawyers, industry groups and trade bodies, NGOs and other businesses. It will also hold a series of roundtable discussions as part of the consultation process.
The draft guide can be downloaded at: www.taskforceonsocialfactors.co.uk
TSF chair and chief strategy officer at IFM Investors Luba Nikulina, says: “We want to ensure that the recommendations are useful, practical and actionable, and support pension scheme trustees and the wider industry manage some of the key challenges around integrating social factor considerations into their work.
“I encourage the sector to provide feedback on the current draft of the report, as well as useful additions that we should take into account for the final report.”
TSF co-chair and stewardship manager at Pension Protection Fund Daniel Jarman adds:“Of the three strands of ESG, social factors are often the least considered in investment decisions; but issues such as modern slavery, safety in supply chains, and remuneration practices, are all vitally important from an investment perspective.”
Maria Nazarova-Doyle, co-chair of the taskforce and global head of Sustainable Investment at IFM Investors, adds: “Social factors have not yet enjoyed as much prominence in the pensions industry as climate has had, and it is our hope that this guide will provide useful support to elevate the approach to social factor integration into investment decisions and stewardship across the whole industry.”
The PLSA welcomed this report. The organisation deputy director of policy Joe Dabrowski says: “Social factors are becoming a much higher priority for schemes of all kinds when it comes to their engagement and stewardship activities. The Taskforce’s guide will help trustees understand their investee companies’ impact on society and hold them accountable.”