Government signals drive to boost ESG options for pension funds
UK government pensions minister Guy Opperman has signalled plans to accelerate ESG action for pension funds ahead of the milestone COP26 conference in 2021.
“The government will be making announcements on climate change considerations on the whole investment chain and you can expect more and more action,” he said in a speech at the Pensions & Lifetime Savings Association’s (PLSA) annual conference.
Without spelling out the detail, he pointed to discussions with the Financial Conduct Authority (FCA) and its pipeline of activity on applying the new rules on its Task Force on Climate-related Financial Disclosures (TCFD) standard to asset managers, which is expected to go live in 2022.
“The direction of travel is clear,” he said. “The purpose of that work was to make sure that pensions organisations and asset managers are aligned. The FCA’s move on accelerating that work is very significant and helpful.”
The government is already demanding the inclusion of TCFD reporting rules for pension funds in its Pension Schemes Bill while the Department for Work and Pensions has just finished a consultation on its implementation.
As this unfolds, the PLSA has set out recommendations to the government on upping its ESG credentials, including a specific initiative to flag retiring defined contribution members towards what it is describing as ‘preferred’ products.
On 14 October, it announced a raft of new policies to a build a more sophisticated infrastructure to address the risk of climate change. It also condemned inconsistent descriptions and limited offerings of green investments, alongside calling for the issuance of green gilts to make it easier for pension funds to include sustainable investment products.
The PLSA further recommended a review, jointly led by industry and the government, to tackle the confusing array of standards and definitions in the marketplace, working towards “a common language and taxonomy ahead of COP26”.
It also recommended that TCFD is adopted and enforced more widely across the investment chain, and in a separate commitment said it would deliver better training and education, working with the International Corporate Governance Network and creating guidance on good climate stewardship.
In a statement, PLSA chair Richard Butcher, said: “Climate change is a massive issue, and the pensions industry has the opportunity to help mitigate its impact by investing in a climate-aware way. This report highlights some of the barriers to climate aware investing — none of which are insurmountable — and proposes some actions to overcome them.
“We’ve spent a great deal of time talking to all parts of the pension investment chain about these barriers and, while some pension schemes are already taking a proactive and leading position on the subject, there is a genuine appetite throughout to address them and do more.”
In another announcement on 13 October at its conference, the PLSA called for the establishment of a new regulatory framework to help savers with the complex decisions they face when choosing how to access their pension at retirement.
This followed a three-month consultation which set out the PLSA’s vision for a new Defined Contribution Decumulation framework in July.
It said that having received widespread support, the final framework remained broadly unchanged, though some of the detail had been enhanced, refined, clarified and added to.
The PLSA stressed the need for a statutory requirement on pension schemes to support their members when they are making decisions about how to access their pension.
The framework will also deliver a set of minimum standards for the saver communication and engagement journey as well as product design and governance, it added.
Emma Douglas, chair, PLSA Policy Board, said: “The pension freedoms radically revised the journey for savers when they reached retirement, bringing new opportunities, challenges and risks to savers and pension schemes.
“The decumulation framework we are recommending today responds to the evolution of the pension system. It will provide vital support to savers and help bridge the gap between the inertia which makes automatic enrolment such a success, and the range of choices (which can be confusing) savers face when electing how to draw their pension at retirement.”
Last Updated: 19 October 2020