The Department for Work and Pensions’ (DWP) Social Factors Taskforce has launched a new guide to help pension scheme managers better understand and assess social factors in their investment decisions and management responsibilities.
Recognizing that schemes have different circumstances, resource levels and time horizons, this guide provides a starting point for trustees to better understand and assess social factors with the help of their advisors and in-house teams. The purpose is to provide trustees with the following tools: Identify and monitor social risks and investment opportunities.
Specifically, this guide introduces social factors into plans’ investment decisions and stewardship policies in four key areas: social factors and pension funds, social factors initiatives, materiality assessment frameworks, and social factors data. It shows the importance of incorporating
Social Factors and Pension Funds explores why social factors are important from an investment perspective and how taking these considerations aligns with the fiduciary responsibilities of pension trustees, as well as Addressing social factors in pension portfolios provides a framework with baselines, good practices and key practice indicators. We also take a deep dive into modern slavery.
Meanwhile, the Materiality Assessment Framework provides an example of a top-down approach to pension schemes, while Social Factors Data discusses the data that fiduciaries can use to manage social factors in their investments.
room for improvement
In addition to the guide itself, the task force shared nearly 40 recommendations for the pension industry, governments and regulators.
As part of this, the group will call on pension scheme administrators to ensure that asset managers consider social factors and incorporate them into their investment strategies and management responsibilities, and will respond to request for proposal (RFP) questions. Examples of mandatory conditions are also provided.
It also said managers must be able to demonstrate that they are impacting social outcomes through transparent reporting on engagement, voting and investment results, including social investment metrics.
The taskforce also made a number of regulatory recommendations and encouraged the DWP to consider formalizing expectations around addressing social factors, which would then be subject to oversight by the Pensions Regulator (TPR).
In addition, it encouraged the Financial Conduct Authority (FCA) to consider setting reporting expectations alongside those required for environmental factors.
The Task Force also recommended that TPR consider a range of ways to increase pension managers’ awareness of social issues, so that they can incorporate social issues into their investments.
More broadly, the task force said governments should continue to foster a policy environment that supports action on social (not just environmental and governance) issues and ensure implementation and effective enforcement of regulations. Ta.
It said governments should continue their efforts to introduce enhanced disclosure across the economy and encourage global standard setters to incorporate social factors.
In addition to this, the task force notes that where scoring methodologies focus on controversy and disclosure, data providers may significantly lower ratings in the absence of material data to encourage greater disclosure by investment issuers. He said that consideration should be given to lowering the tax rate.
It also said that providers of environmental, social and governance (ESG) data and services need to work closely with investors and other parties to find common ground on social factors methodologies and metrics.
Commenting on the guide, Pensions Secretary Paul Maynard said: ‘The UK is already a world leader in tackling climate change risks, so we need a similarly proactive approach to the social drivers of environmental, social and corporate governance. It is the right thing to do.” Investing these and incorporating them into the pension scheme’s investment decisions and management policies.
“We therefore provide useful support in the form of a good practice framework, strengthen accountability among advisers and providers, and better position pension schemes to consider and integrate social factors into their investments. We would like to thank all those who have contributed to the Guide to Strategy. “
Luba Nikulina, Chair of the Task Force and Chief Strategy Officer of IFM Investors, added: “The production of this practical and valuable guide is an example of the strong collaborative approach that the UK pensions industry is well known for. I hope to play a meaningful role in this.”
Adding to this, Louise Davey, Interim Director of Regulatory Policy, Analysis and Advice at TPR, said: “Social factors pose both risks and opportunities for planning. Trustees cannot ignore social factors that they consider to be financially significant.
“We urge trustees to make use of the guidance to help them address key issues as part of their investment management and risk management.
“It is also important that trustees actively engage with asset managers to ensure that social factors are integrated into investment objectives to deliver positive outcomes for savers.”
Joe Dabrowski, deputy director of policy at the Pensions and Lifetime Savings Association (PLSA), said the guidance represents a “significant step change” in the support provided to pension funds and in efforts to better incorporate social factors into investment decisions. ”, he emphasized.
“In recent years, the impact of social factors has come to a close, including the impact of the pandemic, increased awareness of issues such as diversity and inequality, the impact of modern slavery, health and safety, supply chain issues and the wider workforce. “However, social factors can be more difficult to monitor, both from a data and impact perspective,” he said.
“We are pleased to be able to support the work of the DWP’s Social Factors Taskforce in addressing these challenges.”
Adding to this, Stephen Barry, Acting Director of Responsible Investment at the Church of England Pensions Board, said: “Pension funds have a responsibility to understand and act on the social factors that influence our investments and ultimately our members’ outcomes.
“Failure to do so can increase risks and social inequities, because from human rights to fair wages, these issues are at the heart of thriving societies and economies. We welcome the launch of the Task Force’s guide, which identifies practical ways to tackle these topics.”
The guide and recommendations were shared alongside a quick start guide for fiduciaries, a data source directory, effective management, investment and advisory services guides, and real-world case studies.