The UK government has formally established an industry-led taskforce to tackle social factors in the investment world.
The 15-member taskforce will be chaired by Luba Nikulina, chief strategy officer at IFM Investors. It has been given three key tasks: identifying reliable data sources that can be used by pension schemes to identify and manage social risks; monitoring developments of the ISSB and other standards; and “developing thinking” around how trustees can identify and manage risks posed by modern slavery and supply chain issues.
The group is set to operate for one year, and deliver guidance and recommendations on social factors for pension funds in the UK.
The members are split into three working groups. One will look at making the case for social factors as financially material considerations, as well as roles and responsibilities across the investment value chain. The second will conduct a mapping exercise for data sources and other resources, as well as improving data, while the third will look at modern slavery as a case study for social risk.
Taskforce members include representatives from UKSIF, the Church of England Pensions Board, Scottish Widows, RailPen and ShareAction. A host of government departments and regulators will act as observers, with the Department for Work and Pensions (DWP) providing the secretariat.
The taskforce was first proposed in the DWP’s response to a call for evidence on social factors in pension schemes.
IFM’s Nikulina told Responsible Investor: “It was loud and clear that pension funds and the investment industry do appreciate the significance and importance of social factors, but they lack a road map on how to approach it systematically.
“There is general interest [from trustees], it’s more that sometimes it’s just put into this bucket of ‘too difficult to approach’”.
When the DWP issued its response last year, it warned pension funds against “woke capitalism”, saying it was clear that social considerations “should not be side-tracked by political activism or political agendas”.
Nikulina said one of the taskforce’s aims was “making a better case that social is a financial consideration rather than just a moral sentiment”.
This was echoed by Hilkka Komulainen, head of responsible investment at Aegon UK. “What the taskforce is looking to illustrate is the materiality of social issues in investment,” she said.
“What I’m personally hoping to see is clarification on the roles and responsibilities of each player in the value chain. The idea isn’t that pensions on their own seek to solve the problem, but rather help figure out what responsibility you have and play your part in addressing socially responsible investment considerations.”
Komulainen will head the working group looking at modern slavery as a case study. One of the problems with the market at the moment, she said, is that a lot of guidance on human rights and modern slavery risk is aimed at asset managers and focused on doing due diligence on a specific company.
Pension scheme trustees, however, are more likely to be assessing asset managers or funds themselves, often in conjunction with consultants.
“We aim to address that very specific context, where a lot of responsibilities and requirements are placed on trustees,” Komulainen said. “This taskforce will help them chart out this substantial area of responsible investment where there isn’t consolidated guidance for pensions specifically.”
Lack of data is often cited as a challenge in other areas of ESG. For Nikulina, however, social factors suffer from “almost an overabundance of data and data sources and the lack of a more systematic approach to identifying, assessing and managing these factors”.
On the data side, the taskforce will try to map the landscape of data sources and resources, and provide guidance on how to tap and use the data itself. “Data itself can take you only so far,” said Nikulina. “It’s more the interpretation and the insights that you get from the data that allow you to manage risks and opportunities.”