TPR: 'Too many smaller schemes opt for minimum compliance’ on ESG
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The Pensions Regulator has criticised trustees for not going beyond minimum compliance on environmental, social and governance factors, and says it wants to see more active engagement, including in pooled funds.
Too many smaller pension schemes only show minimum compliance with ESG duties, TPR said as it published a report on ESG on Tuesday, while acknowledging that most trustees meet their duties.
Its climate and sustainability lead Mark Hill called trustees’ focus on compliance only “a missed opportunity”.
“Trustees should aim to fully demonstrate their engagement with material ESG considerations, whether climate impact, nature loss or social factors, and invite challenge in the interest of protecting outcomes for savers,” Hill said.
The regulator has said if trustees think they do not have the expertise or governance to be able manage financially material ESG risks effectively, “they should consider whether consolidating their schemes could improve the way in which these risks are managed for their members”.
It also wants to see “more evidence of trustee oversight” where the management of such risks, the engagement and voting have been delegated to an investment manager – including where schemes use pooled funds.
Hill said: “Trustees must provide appropriate detail in their reporting and show they are influencing and taking ownership of ESG considerations, even where responsibilities are delegated, or where the scheme is invested in pooled funds.”
The regulator said trustees could ask managers to vote in line with the scheme’s policies, or join investor initiatives.
The regulator also repeated a previous suggestion that schemes would do well to familiarise themselves with newer aspects of ESG, as these could become mandatory.
“As ESG disclosure reporting requirements are likely to continue to expand, trustees may wish to voluntarily become early adopters of reporting requirements relating to, for example, nature, biodiversity and social factors,” said Hill.
The report showed that among the roughly 3,500 scheme returns by defined benefit, defined contribution and hybrid schemes checked by TPR, compliance levels were high. TPR said only about 1% did not have weblinks to their statements of investment principles and implementation statements as required, and only around 2% of the links could not be accessed.
The regulator also used machine-reading techniques, supplemented by staff, to review the SIPs and IS of around 375 schemes and conducted in-depth reviews of SIPs and IS provided by around 50 schemes.
