DWP launches consultation on consideration of social factors in pension schemes

The government has launched a consultation scrutinising the effectiveness of occupational pension scheme trustees’ current policies and practices in relation to social factors.

The call for evidence, which closes on 16 June, is looking to assess how pension schemes trustees understand social factors and how they integrate considerations of financially material social factors into their investment and stewardship activities.

It is expected to help increase policymaker and industry understanding, both of what is currently being done and what more could be done, in order to ensure that the risks and opportunities connected to social factors are adequately considered by pension schemes.

The call for evidence also builds on the Pension Ministers’ recent activity in this area, having written to around 40 of the largest pension schemes in February to gather information on their environmental, social and governance (ESG) policies and stewardship practices.

Indeed, stewardship was highlighted as a particular focus for the call for evidence, with the government describing this as a “core approach” trustees can utilise to take social factors into account.

However, it also stressed that, at present, it was "not clear" whether stewardship is happening at a high standard across the pension sector, with a number of specific questions on this topic included in the call for evidence.

In addition to this, the government highlighted two of the recent recommendations from HM Treasury’s Asset Management Taskforce: the creation of a dedicated council of UK pension schemes, and a requirement for UK pension scheme trustees be required to explain how their stewardship policies are in members’ best interests.

The consultation confirmed that the government “welcomes both recommendations and is closely considering both”, adding that it is currently investigating the feasibility of a stewardship council for occupational pension schemes.

Commenting on the call for evidence, Pensions Minister, Guy Opperman, said: “I’m proud of the progress we have made in bringing environmental and climate issues up the pensions agenda, helping make pensions fit for 21st century challenges.

“But climate change should not be trustees’ sole consideration. Financially material social factors also pose risks to schemes’ investments, which is why we’re launching this call for evidence to understand what more can be done by industry and policymakers to protect savers.

“By considering the risks – and opportunities – relating to supply chains and communities, employees and business models, local economies and landscapes, investment strategies can better deliver long-term value."

The Five Foundation CEO, Nimco Ali, added: “The issues of diversity, gender and the empowerment of women are pivotal to global prosperity.

“Economic justice for women – especially those we work with in Africa – is one of the biggest opportunities we have for unleashing a new wave of investment growth, while, at the same time, reducing violence and discrimination against women and girls such as female genital mutilation (FGM) and sexual violence. It is truly a win-win situation.

“Today’s call for evidence will help us to identify opportunities where pension funds not only provide healthy economic returns for investors, but can also contribute to women’s economic empowerment.

"This review will benefit all of us and I hope it is responded to enthusiastically."

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