The Taskforce on Social Factors has published a new guided aimed at helping pension schemes and trustees monitor and assess social factors as part of their wider stewardship and ESG investment decisions.
This Taskforce was set up by the Department of Work and Pensions, and includes those working across the pensions industry in a number of different roles: from schemes, to asset managers, data providers and trade bodies.
This new guides aims to provide trustees with the tools to identify and monitor social risks and opportunities of investments. Recognising schemes have different resource levels and time horizons, the guide is designed to be to a starting point for trustees working in conjunction with advisers and, where appropriate to in-house teams.
The guide sets out for pension trustees the importance of embedding social factors within schemes’ investment decisions and stewardship policies in four key areas:
- Social factors and pension funds explores why social factors are important from an investment perspective, and how taking account of these considerations aligns with pension trustees’ fiduciary duties.
- Addressing social factors in pension portfolios provides a framework with ‘baseline’, ‘good’ and ‘leading’ practice indicators, along with a deep dive into modern slavery and how trustees can approach this issue within an investment framework.
- Materiality assessment framework provides an example top-down approach for pension schemes.
- Social factor data discusses data trustees can use to manage social factors in investment.
Alongside this guide — which can be downloaded here — the Taskforce has published a series of recommendations for the pensions industry, government and regulators.
This includes the following recommendations:
- Pension schemes: Pension trustees should ensure their asset managers consider social factors and integrate them into their investment strategy and stewardship. The TSF 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.
- Government: Government should continue facilitating a supportive policy environment for action on social (not just environmental and governance) issues and ensure implementation and effective enforcement of regulation.
- Data providers: Data providers to consider strong mark-downs of ratings for the absence of key data, to encourage enhanced disclosures from issuers of investments.
The pensions minister Paul Maynard says: “The UK is already a world-leader in tackling climate risk, so it is right that we take a similar proactive approach towards the social factors of ESG investing and embedding these within pension schemes’ investment decisions and stewardship policies.”
IFM Investors chair of the Taskforce and chief strategy officer Luba Nikulina adds:
“Thanks to the hard work of the taskforce members, the support of the Minister and his department, and the feedback and support from the pensions sector, I believe this guide will provide practical support for pension trustees as they navigate the risks and opportunities of social factors on investment decisions.
“The creation of this practical guide is another example of the strong collaborative approach the UK pensions industry is so known for. I hope the guide will play a meaningful role in better understanding social factors, both here and globally.”
PLSA deputy director of policy Joe Dabrowski adds: “In recent years, the impact of social factors has been brought into sharp focus – the impact of the pandemic, growing awareness of issues such as diversity and inequality, the impact of modern slavery, health and safety, supply chain issues, and wider workforce conditions. Social Factors can however be more difficult to monitor in terms of both data and impact.
“The guidance launched today marks a significant step change in the support provided to pension funds, and their efforts to better incorporate social factors into investment decisions. We are delighted to have supported the work of DWP’s Social Factors Taskforce in tackling these challenges.”