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UK govt moves forward on corporate TCFD rules, asks pension funds how they consider social issues

Pensions minister says large scheme performance on social factors is ‘mixed’

The UK’s Department for Work and Pensions has launched a call for evidence aiming to understand how pension fund trustees factor social issues into investments and stewardship activities. 

The move comes after Pensions Minister Guy Opperman wrote to 40 of the UK’s largest schemes in February requesting information on the topic – a call that garnered a “mixed” response and revealed “high-level and unilluminating” policies, he said. 

Having already introduced a number of ‘green’ reforms in recent months, including mandatory TCFD reporting for big pension funds, Opperman said the UK Government must now turn its attention to social and governance factors.

Social issues at UK companies have been in the headlines recently after local suppliers for clothing retailer Boohoo were last year alleged to be paying workers £3.50 an hour – far below the national minimum wage. The high-profile downfall of UK companies including retailer BHS in 2016, contractor Carillion in 2018 and travel agents Thomas Cook in 2019, caused significant national job losses and pension holes, fuelling questions about the adequacy of both social and governance rules for corporates in the country. 

Last week, the Government launched a consultation on a series of proposals linked to auditing and remuneration, in a bid to address the problem. Under the proposals, historical executive bonuses could be clawed back if a company collapses or serious failings are identified. Large companies would also have to make resilience statements detailing risks to the business, including climate-related risk.

The reforms would also aim to break the stranglehold of the ‘big four’ auditing companies – KPMG, EY, PwC and Deloitte – potentially limiting their market share among FTSE 350 companies.

Today’s call for evidence is open to scheme trustees and advisors, as well as civil society organisations, and scheme members and beneficiaries.

It asks for details of funds’ approaches to social factors, including their policy on financially material social issues, and whether such issues are considered separately to ESG factors in general.

It also asks how well schemes understand social factors, and how companies perform on social issues, as well as details of relevant stewardship and engagement activities. 

The final question in the call for evidence asks about the opportunities for trustees to invest in emerging market companies solving social issues, and the attractiveness of these investments.

“We are particularly pleased to note the paper’s emphasis on the vital role of scheme stewardship and the importance of meaningful dialogue with firms," said Caroline Escott, Senior Investment Manager at pension fund RPMI Railpen. "Railpen has been engaging with our portfolio companies on issues like workforce treatment, modern slavery and cybersecurity for several years as we believe that positive corporate behaviour on social issues is a vital ingredient for long-term financial performance.”

The UK is also continuing to push on climate, as it prepares to host COP26 in November. The Department for Business, Energy and Industrial Strategy today launched a consultation on rules that would force all listed companies in the country with more than 500 employees, as well as LLPs and private companies with more than £500m turnover, to report in line with the recommendations of the TCFD by 2022.

The plans, developed with the UK Treasury, are based on the Government’s 2019 Green Finance Strategy, which said that all publicly-traded firms and large asset owners should provide such disclosure. The consequent consultation for pension funds closed last week and the consultation for corporates will run until the 5th of May. 

“The proposals are an important step towards the UK’s intention to become the first G20 country to make TCFD-aligned disclosures mandatory across the economy,” the government said in a statement.