In June 2021, the Institute submitted its response to the Department for Work and Pensions’ consultation on the consideration of social risks and opportunities by occupational pension schemes.
The consultation seeks to examine the effectiveness of occupational pension scheme trustees’ current policies and practices in relation to social factors. It also looks to assess how trustees of these schemes understand “social” factors and how they plan to integrate considerations of financially material social factors into their investment and stewardship activities.
The Institute strongly welcomes the consultation’s foresight in recognising the increasing importance of social factors for investing. We want to make it easier for pension schemes to invest with impact, which is consistent with their purpose, and support them in reducing negative impacts and risks to the environment and society such as carbon emissions, biodiversity loss, poor governance, and inequality that arise from their portfolios.
Our response is structured into four parts: the importance of social factors, impact, stewardship, and the opportunities – in the UK and emerging markets – of incorporating financially material social factors in the investment process.
In response to the consultation, we make two key recommendations:
- UK pension scheme trustees should be provided with a framework to aid them in understanding social factors and how they can be included in their Environmental, Social and Governance (ESG) policies. We invite the Department for Work and Pensions to support our Impact Investing Principles for Pensions and encourage their adoption by all pension schemes.
- UK regulation and supervisory practices should reflect an equal emphasis on environmental and social factors. To underline the importance of social factors, the Government should establish a Social Technical Advisory Group to advise on a ‘social taxonomy’, to complement the work of the Green Taxonomy Advisory Group to develop a ‘green taxonomy’. The Institute would be pleased to contribute to this work.
See more details in our full response below.