The guide focuses on four key areas: social factors and pension funds, which looks at why social factors are important from an investment perspective and how they align with fiduciary duty; addressing social factors in portfolios; a materiality assessment framework, which provides an example of an approach that pension funds can take to assessing social factors in portfolios; and social factor data, which considers the data trustees can use to manage social factors in investment.
The task force also published almost 40 recommendations for the retirement industry, government and regulators. Among the recommendations is a call for pension fund trustees to ensure their money managers are looking at social factors, with example RFP questions; a call for the DWP to consider formally setting out expectations on addressing social factors, and for the Financial Conduct Authority to consider reporting expectations alongside those already required for environmental factors; and for money managers to be able to show they have influenced social outcomes through transparent reporting on engagement, voting and investment outcomes. A recommendation to the government is to continue to facilitate a supportive policy environment to allow for action to be taken on social issues; while data providers should consider strong ratings markdowns where key data is missing. The task force said that would encourage enhanced disclosure from issuers.
"A challenge is, how do we define parameters differently for different levels of data?" said Luba Nikulina, chair of the task force and chief strategy officer at IFM Investors, at a briefing on March 7 to launch the guide. She said lack of data is not a problem — the issue is making sense of available data and making it useful for decision-makers. "I can genuinely say as chair that this was the most difficult job," she said.
Daniel Jarman, stewardship manager at the Pension Protection Fund, London, added at the same briefing that the task force is not "saying we've found the golden bullet, but I do think we've come up with a document that, if engaged with, (mean pension funds) will be able to at least get a good understanding of what their next steps are — and that is to raise the bar across the industry."
The task force includes representatives from pension funds, money managers, data providers, cross-industry collaboration groups and civil society.
