The majority of pension trustees will now be compelled to consider environmental, social and governance factors as part of their investment process.
These updated regulations were published by the Department of Work and Pensions, following a consultation.
Under the new regulations trustees will be required to explain their approach to ESG factors, stewardship of investments and ethical issues, and how these affect investment decisions.
Many will also be required to report annually to pension scheme members on what they have done to implement their approach to these subjects. The new regulations will also cover how trustees should address pension savers’ ethical concerns and wider interests.
The DWP confirmed that this consultation has attracted responses from over 3400 individuals. Many are understood to have been in support of these changes.
The Pensions and Lifetime Savings Association’s director of policy and research, Nigel Peaple says:
“These new regulations are a welcome step in providing some much-needed clarity for pension schemes on ESG issues.
“As long term investors, it’s important that pension schemes are considering risks such as climate change, and the new regulations should help trustees understand when an issue is a financial consideration or an ethical one.
“We look forward to working with our members and the government on the implementation of these regulations, including any accompanying guidance, to ensure it is done efficiently and in a way which adds real value for savers.”
ShareAction also welcomed these new regulations. It has campaigned for a number of years for a change in the law to compel pension schemes to address the financial risks posed by a wide range of environmental, social and governance factors, notably climate change.
ShareAction’s chief executive Catherine Howarth (pictured above) says: “We commend the government on this action to protect UK pension savers.
“Working people in the UK deserve a 21st century risk management of their retirement assets, and investment strategies that anticipate the impact on portfolios of issues like climate change.
“They also deserve to be heard by the trustees and investment professionals looking after their savings.
“These regulations are a big step forward in shifting the culture and practice of the UK pensions sector. It is now over to the FCA to ensure savers in schemes it regulates are given similar information and protection.”