UK government warns pension funds off ‘woke capitalism’ as DWP pushes on social issues

Government establishes minister-led taskforce to tackle social data and plans guidance on investing in the defence industry.

The UK government has warned pension schemes in the country not to get “side-tracked by political activism or political agendas” as they consider social factors in their investments.

Responding Friday to the results of a call for evidence on how social factors are integrated into investment decisions, the Department for Work and Pensions (DWP) said that schemes’ “fiduciary duty to their members remains paramount” and that they should avoid getting side-tracked by political issues, “sometimes referred to as ‘woke capitalism’”.

The department also announced plans to issue guidance on investing in the defence industry “in due course”. The government is currently considering legislation to ban public bodies – including local government pension schemes – from making any divestment decisions that are not in line with the UK’s foreign policy. While the legislation seeks primarily to address divestment from Israel, UK consultancy Barnett Waddingham has warned that a poorly worded bill “could get quite messy with some unintended consequences, particularly in respect of the potential overlap between prudent ESG decisions and a clash with UK foreign and defence policy”.

In his introduction to the DWP’s response, UK pensions minister Guy Opperman said that a year ago, defence and nuclear weapons and power were seen as no-go areas for ESG funds, but after the invasion of Ukraine, “the situation has changed and ESG investing should change with it”. ESG, he said, must look at objective outcomes and not be distracted by political agendas.

Alongside the response to the call for evidence, Opperman established Friday a new government taskforce to help the UK pensions market better consider social factors in their investments.

He noted that, while the DWP had made good progress on pushing environmental issues up pension funds’ agendas, “climate change should not be trustees’ sole consideration”. Social factors also pose risks to funds and the taskforce will ensure that the focus on social issues grows, he added.

The major focus of the taskforce will be on data and metrics, after respondents to last year’s call for evidence highlighted a lack of data and metrics as common barriers for considering and engaging on social factors. The DWP said it would be looking to identify “reliable” data sources on social factors, as well as looking for other “useful resources” for schemes.

The taskforce will include participants from government departments and the UK’s financial regulators, but the DWP did not respond when asked whether private sector participants will be involved.

Opperman will head the group up, although it is unclear how long he will remain in office: he resigned earlier this month as part of a successful campaign to oust UK prime minister Boris Johnson, but was reappointed the following day “to help the DWP navigate the next few weeks”. It is possible that Johnson’s replacement will appoint a different pensions minister.

Steve Webb, former pensions minister and current partner at pensions consultancy Lane Clarke & Peacock, said that – if Opperman is replaced – the impact of the taskforce would depend on the priorities of the next minister.

“Whilst it’s unlikely that a taskforce that had just been set up would be scrapped, a new minister might decide that this was a low priority, perhaps delegating attendance at meetings to officials, whilst the ability of the taskforce to get things done without active ministerial backing could be diminished,” he said.