Pension trustees in the UK can no longer ignore the ESG elephant in the room

The Pensions Regulator (TPR) has reiterated in a new blog the importance for pension scheme trustees of complying with their environmental, social and governance (ESG) and climate-change duties.

In its 17 May blog, TPR provides more details on how it will carry out its well-publicised 2023 initiative to make sure trustees are fully complying with the requirements for statements of investment principles (SIPs) and implementation statements. TPR launched its ESG initiative earlier this year.

TPR's initiative will have two phases: checking that trustees have correctly published their SIPs and implementation statements; and reviewing the climate, ESG and wider sustainability related provisions in those documents.

Phase one: publication

TPR has been asking trustees of those schemes that are required to publish a SIP and an implementation statement – broadly, those schemes with 100 or more members, and currently numbering around 3,900 such schemes – to provide a web address for those documents in their scheme return.

TPR is going to check that all trustees have published correctly, and it proposes to contact those schemes that have not.

Phase two: review

Phase two involves TPR reviewing a cross-section of schemes' SIPs and implementation statements. This will be a qualitative review specifically in relation to the climate, ESG and wider sustainability-related provisions included in those documents.

TPR says that phase two will start this autumn (although no specific date has yet been provided), by when implementation statements should all reflect the Department for Work and Pensions' (DWP) guidance published in June 2022.

TPR intends to finalise which schemes will be subject to its review in the coming months. It will share the outcome of the review with the pensions industry, and will look to publish examples of good practice.

Osborne Clarke comment

In this latest blog, TPR calls on trustees to "improve their understanding of climate, ESG and wider sustainability issues [and] improve the quality of their policies and disclosure, with a move away from boilerplate wording." TPR also wants schemes to ensure that "action follows intent." Our view is that what TPR is looking for is evidence that trustees are actively complying with the spirit, as much as the letter of, the ESG and climate-change requirements. It wants to see that trustees have genuinely considered financially material ESG factors (including but not limited to climate change) in their investment decision-making, and have taken account of the DWP's guidance.

Trustees can now no longer ignore the ESG elephant in their (board)room!

"Green Pensions" (or "investing for the future") is one of Osborne Clarke's client campaigns for 2023. Our mission is to help our occupational pension scheme clients engage with the risks and opportunities presented by climate change, decarbonisation and wider ESG factors in relation to their investments, working closely with our decarbonisation colleagues. Our previous Green Pensions Insight looked at the how the TPR is stepping up its focus on ESG and climate-change reporting rules.