The U.K.'s Pensions Regulator clarified what it means by financially material environmental, social and governance factors under investment requirements for defined contribution plan trustees that will be effective Oct.1, in a guidance published Thursday.
The DC investment reporting guidelines were updated to reflect new requirements that DC trustees will be expected to include in the plan's statement of investment principles how factors such as climate change are being taken into consideration, how the plan is exercising its ownership rights and how participants' views are being taken into consideration.
Trustees will have to publish their policy on the plan's website and report on achieving these objectives.
"Climate change is a core financial risk which trustees will need to consider when setting out their investment strategy," said David Fairs, executive director of regulatory policy, analysis and advice at TPR, in a news release. "They will be obliged to show how they are taking this and other financially material considerations into account over the lifespan of investments. This guidance provides updates as well as clarity for trustees, including considerations when planning scheme investments."
Commenting in the guidance, Brian Henderson, partner and director of consulting at Mercer said in an emailed comment: "When taken together with growing public interest in issues such as climate change, gender diversity and modern slavery, ESG is firmly near the top of schemes' agendas. We support this guidance and hope it serves to clarify what is now required of DC scheme trustees."
Vassos Vassou, senior trustee representative at Dalriada Trustees, said in a separate emailed comment: "Pension trustees are almost uniquely placed to positively influence company behavior towards climate change. As stewards of pension assets, we can affect how companies act, indeed we have an obligation to our members and to society at large to provide effective governance and hold companies to account. With climate issues becoming front of mind, we need to be conscious of what our members want from their investments and act responsibly on their behalf."