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The DWP said it seeks to assess how trustees understand social factors and how they try to integrate considerations of financially material social factors into their investment and stewardship activities, asking eight questions of trustees.
Pensions minister Guy Opperman said that action on ESG has tended to focus on climate change, adding: "It has never been my intention that climate change should be trustees’ sole ESG consideration - not least because action on climate change is often linked to action on wider social factors. Equally, poor governance in a company may contribute to poor performance on environmental and social considerations. Whilst we have an understanding of what good governance entails, as set out in the Corporate Governance Code, I am concerned that social factors are not well understood."
Opperman said the policies of many trustees in relation to social factors were "high level and unilluminating", and that there is a concern that trustees are "ill-equipped" to deal with financially material social factors in their investments.
"How well do they, and those acting on their behalf, understand what is happening in the supply chains? How exposed are they to the risks posed by action on these issues? And what are they doing in response?" he said.
The consultation follows scandals surrounding companies like fashion retailer Boohoo, which was found to have profited from labour exploitation. The consultation notes that despite its failings, the company's share price rose, showing "misalignment between the market and 'good practice' on social factors". It also names Sports Direct as an example for poor social factors.
The consultation also comes amid greater focus on what a transition to a green economy will mean for UK workers amid a debate around a planned coalmine in Cumbria, and as some western companies are still producing in China's Xinjiang province, where journalists have found evidence of forced labour.
The consultation closes at 11:45pm on 16 June.