Draft responsible investment guidance has been circulated to 89 UK local authority pension schemes, which represent a combined asset base of £259bn (€291bn); they have around a month to provide feedback.
The guidance, seen by RI, focuses on the scope for ESG integration within the context of current regulations and guidance. A planned second part will focus on the practicalities of incorporating ESG considerations into the investment process and provide a “toolkit” for decision-makers.
The guidance is to be read in conjunction with the Guidance on Preparing and Maintaining an Investment Strategy Statement, statutory guidance from the Ministry of Housing, Communities and Local Government (MHCLG) which was recently amended to require schemes to include their approach to ESG in a public investment strategy statement.
As such, the guidance examines relevant developments such as a 2014 Law Commission review which concluded that trustees are to consider all financially material considerations regardless of source. It also looks at legal opinions on the difference between the fiduciary duty of private sector pension trustees and those for decision makers in pubic schemes.
The guidance also lists examples of responsible investment issues such as human and labour rights issues, tax, remuneration and integrated reporting – although it doesn’t provide recommendations on how they should be addressed.
The guidance has been in the works for a long time: RI first reported it was being developed back in 2017.
However, it was temporarily put on hold in 2018 after the Department for Work and Pensions (DWP) announced amendments to regulations on fiduciary duty, to incorporate the changes into the statutory guidance governing the local authority schemes.
The guidance was developed by the advisory board for the Local Government Pension Scheme (LGPS), which is made up 50% of employer representatives and 50% trades union representatives appointed by the MHCLG department.
Once finalised, the responsible investment guidance will be reviewed annually by the advisory board, upon consultation with member fund representatives and other stakeholders.
Pension schemes have until January 11 next year to respond to the consultation. Comments and details of case studies can be submitted to firstname.lastname@example.org
Separately, the Wales Pension Partnership, one of the eight pooled LGPS schemes, has announced a responsible investment policy. It is the last of the schemes to do so despite an April 2018 government-imposed deadline.