TPR says pension funds must examine long-term material potential to investments.
Twelve investment consultants representing the lion’s share of the UK pensions advisory market say they will raise awareness among clients of guidance from The Pensions Regulator (TPR) that schemes should examine where environmental, social and governance (ESG) factors are material over the long-term to their investments.
The consultant commitment – a rare combined support effort for responsible investment – which has been organised by the Association of Member Nominated Trustees (AMNT) and the UK Sustainable Investment and Finance Association (UKSIF), could, the organisations say, mark a significant acceleration in the growth of long-term, sustainable, investment strategies.
The UK’s TPR has in recent months been elaborating its ESG-related advice to UK defined benefit (DB) and defined contribution (DC) schemes.
But, there have been concerns that smaller pension schemes don’t have the resources to consider ESG issues and need clearer guidance from advisors to do so.
In addition, medium and larger plans often lack a framework to implement thinking on the financial implications of sustainability issues such as climate change. Some in the RI industry have also voiced concerns that RI commitments and research by ‘head office’ at consultants has not translated into actual implementation by the ‘field consultants’ who have the primary relationship with trustees.
The consultants said they were joining with AMNT and UKSIF to recognise that the TPR Guidance means DB and DC schemes need to address risks around long term sustainability, including ESG issues.
The consultants signing up are: Allenbridge, Aon Hewitt, Barnett Waddingham, bfinance, Cardano, Hymans Robertson, JLT Employee Benefits, Lane Clark & Peacock LLP, Mercer, Quantum Advisory, Redington, Willis Towers Watson.
In the commitment, they said: “We agree that this change, reflected in the TPR’s statement to trustees that ‘We expect you to assess the financial materiality of these factors and to allow for them accordingly in the development and implementation of your investment strategy’ puts trustees and their advisers under an obligation to react.
“We believe that ESG is a fundamental part of success in long-term investing, therefore we are drawing the guidance to the attention of UK pension fund clients through a variety of routes such as putting consideration of ESG on trustee meeting agendas, issuing briefings and/or holding training sessions. We also recognise the significant role that client-facing consultants can play in ensuring that our clients are well informed on the issues.”
Fred Berry, Lead Investment Consultant at TPR, said: “We welcome this initiative from the AMNT, UKSIF and the signatory organisations. We know from our research with trustees that many, particularly lay trustees, rely on their advisers to keep them up to date with our news and guidance. We expect investment consultants and others advising pension schemes to support trustees to manage risks to member benefits, including risks to the sustainability of the scheme’s investments.”
The AMNT has nearly 700 members from pension schemes with collective assets totalling more than £650 billion.
UKSIF has 240 members representing over £7,000bn under stewardship, with a mission to grow sustainable and responsible finance in the UK.
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