The U.K.'s Department for Work and Pensions on Friday finalized guidance on how pension trustees report their stewardship activities. It includes how trustees should oversee asset managers when it comes to voting and engaging on climate and other ESG issues.
The DWP guidance measures are "intended to support pensions schemes to play their part in tackling climate change and protect their members' savings from ESG risks," said Therese Coffey, secretary of state for work and pensions, and Guy Opperman, pensions and financial inclusion minister, in a joint statement.
The guidance augments climate reporting requirements using Taskforce on Climate-related Financial Disclosure guidelines that already apply to pension funds with at least £5 billion ($6.2 billion) and will apply to those with at least £1 billion in October.
The new guidance explains DWP's expectations on two reporting requirements: implementation statement reporting and statement of investment principals. It also requires trustees to set stewardship priorities.
Simon Daniel, deputy chairman of the Society of Pensions Professionals' investment committee, noted that the guidance encourages pension funds to produce more participant-friendly summaries of stewardship activity. It should also help trustees become clearer about their stewardship priorities and help identify the most significant engagement activity, he said.
When it comes to trustees being responsible for stewardship actions by their external investment managers, "the regulatory mood music remains loud and clear, that delegation is not absolution," Mr. Daniel said in an email.
James Moore, a partner with consultant Lane Clark & Peacock, sees the guidance as encouraging trustees "to move from being relatively passive onlookers in how their investment managers oversee their assets to being much more active participants in how the stewardship process operates and where it focuses, particularly in relation to voting and engagement," he said in an emailed statement. While it may present another burden for trustees, "we do believe that it's one which, when properly addressed, can be a very powerful tool for generating positive investment change," Mr. Moore said.
The Department for Work and Pensions said it will revisit how the guidance is being followed in the second half of 2023.
