On 18 June 2019, the PLSA published a new guide to help pension funds comply with the new ESG requirements coming into force from 1 October 2019, and support them in achieving good practice into the future.
The new ESG requirements stem from a new regulation that was initially proposed by the Department for Work and Pensions in September 2018. The regulations implement the Law Commission's proposals to clarify pension scheme trustees' fiduciary duties in statute and will require pension schemes to have a policy on financially material ESG factors including climate change.
The new rules will update the Occupational Pension Scheme (Investment) Regulations 2005 so that pension schemes will need to consider long-term risks and opportunities of ESG factors in their investments. Under the new requirements, if trustees disregard long-term financial risks or opportunities from ESG, climate change and stewardship factors, they will need to justify why this does not harm investment returns or outcomes for their members.
The guide is designed to support trustees of around 30,000 defined benefit and defined contribution pension schemes responsible for managing nearly GBP 2 trillion. The new guide has been developed by a cross-industry taskforce in response to significant demand from the PLSA membership. It is structured to reflect the typical process that trustees follow to ensure that ESG, climate change and stewardship factors are properly understood, formalised in a relevant policy and, where appropriate, reflected in broader decision-making.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.