Pension scheme trustees must produce a statement of investment principles (SIP) on how they consider the environment in their investment process by 1 October 2019, the Department for Work and Pensions has proposed.

In its consultation on clarifying and strengthening trustees investment duties, published today 18 June 2018, trustees will be required to produce a SIP which will take into account their financial material considerations, “including but not limited to those arising from environmental, social and governance (ESG) considerations, including climate change”.

The consultation, in response to the Law Commission’s 2017 report, said trustees will also be required to prepare a “statement on members' views”, assessing how they plan to take into account members' views on investments.

Secretary of State for Work and Pensions, Esther McVey, said: “These new regulations will empower savers all over Britain, ensuring that their voices are heard when their savings are invested.

“As we see the younger generation who care more about where their money is going, they are also increasingly questioning that their pensions are invested in a way that aligns with their values. This money can now be used to build a more sustainable, fairer and equal society for future generations.”

According to the government, scheme members will be allowed to see how their money is being put to work, and trustees will no longer be shackled by fiduciary duties that put profits before the environment.

In December, the government said trustees may be required to consider a policy on evaluating longer-term risks, as well as a policy on the consideration of members’ ethical concerns, as current legislation has proven to be “confusing and misleading”.

The report said: “We are proposing that trustees should be required to state their policy on the evaluation of financially material considerations. This includes but is not limited to ESG considerations, including climate change, in the selection, retention and realisation of investments.

“We are not proposing to exclusively refer to ESG, including climate change. We do not want to be too prescriptive and industry terminologies, in time, may change. Future systemic risks may also not be readily compartmentalised into one or more aspects of ESG.”

Trustees will also have to set out policies in relation to their engagement with investee firms and voting rights associated with the investment, and will be required to report annually on how they have implemented their SIP policies, explaining any changes they have made in the process.

The DWP said it will plan to lay the proposed regulation at “the earliest opportunity which the parliamentary timetable allows”.

There will be no new penalties for failure to comply, however, existing penalties are in place under section 10 of the Pensions Act 1995, in which the regulator may impose a penalty of up to £5,000 for an individual and up to £50,000 for an organisation.

Last week, the government increased its support for trustees around social impact investing and aspires to schemes targeting a “minimum percentage allocation” towards green investments.

In its response to the Advisory Group’s report, A Growing Culture of Social Impact Investing in the UK, published today, 12 June 2018, the government said it would like members views to be “more seriously considered" and that it will work with regulators to explore news ideas.

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