Recommendations
The United Kingdom roadmap makes recommendations in five categories:
1. The Investment Regulations: The Department for Work and Pensions should revisit the Investment Regulations to clarify that the consideration of ESG factors is a core part of prudent investment decision-making.
2. Stewardship and engagement:
a. Regulation and guidance should provide for a Stewardship Duty to clarify that shareholder rights are assets to be used in the best interests of beneficiaries
b. The Financial Reporting Council should extend the Stewardship Code to explicitly incorporate ESG factors and continue to monitor and publicly disclose the quality of reporting by signatories against the Code.
3. Investment consultants:
a. The FCA should expand its oversight of investment advice to include that provided by investment consultants in relation to ESG factors.
b. The Pensions Regulator (TPR) should provide guidance on the interaction of trustees with investment consultants to help trustees review advice and performance.
4. Corporate reporting: Through the implementation of the Non-Financial Reporting Directive, the development of standardised and comparable approaches for reporting on material ESG factors relevant to investors.
5. Scheme Governance:
a. The governance arrangements for defined-contribution (DC) schemes should be strengthened and provide for enhanced consideration of ESG factors.
b. Schemes should be required to reflect on the impact of their scale on governance quality and, where necessary, consider consolidation.
1. The Investment Regulations: The Department for Work and Pensions should revisit the Investment Regulations to clarify that the consideration of ESG factors is a core part of prudent investment decision-making.
2. Stewardship and engagement:
a. Regulation and guidance should provide for a Stewardship Duty to clarify that shareholder rights are assets to be used in the best interests of beneficiaries
b. The Financial Reporting Council should extend the Stewardship Code to explicitly incorporate ESG factors and continue to monitor and publicly disclose the quality of reporting by signatories against the Code.
3. Investment consultants:
a. The FCA should expand its oversight of investment advice to include that provided by investment consultants in relation to ESG factors.
b. The Pensions Regulator (TPR) should provide guidance on the interaction of trustees with investment consultants to help trustees review advice and performance.
4. Corporate reporting: Through the implementation of the Non-Financial Reporting Directive, the development of standardised and comparable approaches for reporting on material ESG factors relevant to investors.
5. Scheme Governance:
a. The governance arrangements for defined-contribution (DC) schemes should be strengthened and provide for enhanced consideration of ESG factors.
b. Schemes should be required to reflect on the impact of their scale on governance quality and, where necessary, consider consolidation.
Implementation
The project team is engaging on the following priorities for 2018 and beyond:
- The DWP should clarify the Investment Regulations (following the implementation of the EU-wide IORP II directive) to clarify that pension funds should consider financially material ESG issues. The DWP should also introduce a stewardship duty for pension funds to deploy their rights as shareholders.
- The DWP should consider ESG issues as a component of pension fund consolidation.
- The FCA should strengthen the ESG requirements of Independent Governance Committees (IGCs).