Sackers shares latest ESG guidance for trustees

Sackers has shared its latest environmental, social and governance (ESG) guide for pension scheme trustees, highlighting a number of non-climate related issues that are becoming increasingly relevant to pension trustees.

The law firm said that while most pension scheme trustees have been focused on climate-related issues over the past few years, ESG is “not all about climate”.

In particular the new guide considers how the latest recommendations of the Taskforce for Nature-related Financial Disclosures (TNFD) might apply to trustees getting to grips with nature-related risks.

Whilst Sackers acknowledged that pensions schemes are not yet required to make nature-related disclosures in line with the recommendations, it said that, given the direction of travel on ESG and recent public statements by the government, disclosures in line with the recommendations may become a statutory requirement in the future.

Given this, it suggested that trustees who want to get ahead of the curve may wish to engage with investment managers and advisers to understand how nature-related issues are being considered in their decision-making, and whether they may be financially material.

Trustees could also consider what information, if any, is available now and in the near future, the law firm said.

The guidance also considered what crossover for trust-based schemes might come from the new Sustainability Disclosure Requirements for Financial Conduct Authority (FCA) regulated entities, clarifying that while trustees of occupational schemes won’t be directly affected, there may be an indirect effect via the investment funds which trustees invest in.

And although no direct action is required of pension schemes currently, Sackers warned that this is a developing area to watch, urging trustees to remain aware of the proposed SDR and labelling regime and how it may impact their scheme in the future

The guidance also described the draft guidance from the Taskforce on Social Factors (TSF) as a “helpful focus” on social issues, with useful suggestions on how trustees might provide oversight of both stewardship and use of data on social factors by managers and service providers, including investment consultants.

However, Sackers clarified that while TSF’s draft guide suggests that trustees should “understand and consider incorporating the preferences of beneficiaries into [their] decision-making”, this should be addressed with “considerable caution”, as the law is restrictive on the extent to which trustees can base their investment decisions on member views as well as there being obvious practical difficulties of doing so on complex matters.

Commenting in the report, Sackers partner, Stuart O’Brien, said: “We are now over two years into climate-related governance and reporting obligations applying to larger schemes.

"Nearly all schemes to which the Climate Change Governance Regulations apply will have published at least one Task Force on Climate-related Financial Disclosures
(TCFD) report, with many setting voluntary net zero ambitions in addition.

“But ESG is not all about climate and, in this year’s Sackers guide, we are casting the net a little wider, also looking at other aspects of ESG which are becoming increasingly relevant to pension trustees.”

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