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The Actuary The magazine of the Institute & Faculty of Actuaries

New ESG investment rules come into force

UK pension scheme trustees must consider environmental, social and governance (ESG) factors when making investments decisions under new rules that came into force today.

ESG rules a "key milestone" for pension schemes ©iStock
ESG rules a "key milestone" for pension schemes ©iStock

The regulation applies to private pension schemes with over 100 members, and requires trustees to demonstrate ESG considerations in a statement of investment principles (SIPs).

Trustees will also have to outline their approach to engagement with, and voting of shares in investee companies, according to the rules from the Department for Work and Pensions (DWP).

Caroline Escott, policy lead for investment and stewardship at the Pensions and Lifetime Savings Association (PLSA), described today as a “key milestone” for pension schemes.

“But we must remember that this is the start of the regulatory journey and not its final destination,” she continued.

“Trustees must continue to work with advisers and managers to implement ESG across their portfolio, and to consider how best to talk about these issues with scheme members.

"This will be important if they are to meet the next set of 2020 regulatory deadlines, as well as those coming down the track in 2021.”

The changes reflect regulatory updates from the DWP in 2018, and come after the PLSA published guidance to help schemes comply earlier this year.

The guide is designed to support around 30,000 pension schemes, and offers step-by-step instructions that can be applied to individual perspectives and situations.

Developed by a cross-industry taskforce, it uses myth-busters, case studies and questions that the PLSA say trustees should be asking of asset managers and advisors.

“Over the past few years there has been an explosion in the number of ESG products in the market, but schemes must remain vigilant," Escott said.

"Trustees should work with their advisers to differentiate between those asset managers who are walking the walk on ESG and stewardship, and those who are just greenwashing.”

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