Pensions Minister Guy Opperman has fired warning shots at the UK’s largest pension schemes, over failures to meet new ESG legislation.

The minister wrote to the biggest 50 schemes to remind the governing trustees of their responsibilities when it comes to environmental, social and governance, and climate change policies.

The ultimatum comes after new regulations were brought into force on 1 October, compelling the industry to pay closer attention to responsible investment.

Opperman said: “Pension funds are a powerful weapon in the fight against climate change. Despite some good work by a number of schemes, some are not acting. We need urgency on this vital issue from trustees and investment managers.

“New regulations came into force last week, I’m demanding that the remaining pension schemes and the fund managers they appoint stop shuffling their feet. They must meet their responsibilities to savers now and in the future, and to protect the future of the planet.”

The minister has said that any circumstances where neither climate nor ESG risks are financially material are likely to be “extremely limited” and that he is therefore urging trustees to meet their “fiduciary duty to take account of these risks when setting out investment strategy”.

In his letter, the minister spells out what each pension scheme must do under the new government regulations.

This includes taking account of financially material considerations arising from ESG considerations, including climate change – just as they would any other financial risk; having a policy on stewardship of the assets, including both engagement and voting; and having a policy on how members’ views are considered.

The minister also probed the schemes as to what substantive changes they have made - and when - to their investment strategies and their stewardship policies to ensure that trustees act as engaged investors.

The minister has asked schemes to outline their ESG and stewardship investment principles, including the members’ views sections so that he can monitor compliance and highlight best practice.

He has also asked that schemes report in line with the Task Force on Climate-related Financial Disclosures framework.

The minister has asked for schemes to respond to these queries by the end of October.

The Department for Work and Pensions, The Pensions Regulator and other civil society bodies will continue to closely monitor the response to the regulations, and further engagement with other schemes outside of the top 50 is likely, if they do not comply with the new rules.

Failure to update the Statement of Investment Principles for all schemes and the failure to publish it for DC schemes are each separately subject to a ‘section 10 penalty’.

This equates to a fine of up to £5,000 for individual trustees, and up to £50,000 for a trustee board.

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