pensions

ESG Factors Spur Changes in UK Pension Scheme Disclosure Requirements

Posted on August 2, 2019

Posted in Environmental, Social, and Governance

Changes to the Investment Regulations mean greater ESG disclosure requirements in statements of investment principles.

By Paul A. Davies, Michael D. Green, and Shaun Thompson

In response to trustees’ uncertainty about how environmental, social, and governance (ESG) factors — as non-financial factors — apply to pension schemes, the Law Commission and the Department for Work and Pensions (DWP) have been exploring fiduciary duties and regulatory changes to better accommodate ESG factors in pension schemes since 2014.

This joint exploration culminated in the publication of the DWP’s Government Response: Clarifying and strengthening trustees’ investment duties, which outlined the UK government’s intended changes to the pension sector’s incorporation of ESG factors.

This blog will explore the pre-2019 pensions and ESG landscape and outlines future changes to pension disclosure requirements.

Potential Liability for Ignoring Non-Financial Factors in Investment Starts With Climate Change

Posted on December 13, 2016

Posted in Air Quality and Climate Change, Environmental, Social, and Governance, Green Finance

By Paul Davies and Michael Green

Commercial risks to businesses can no longer be neatly divided into financial and non-financial considerations. For example, there is growing recognition, particularly in the pensions sector, that a failure to take account for environmental and social governance (ESG) risks (in particular, climate change risks) can result in adverse financial consequences. While a revised EU directive will impose an obligation on pension fund managers to consider ESG issues, pension trustees may already be subject to potential legal liability if they ignore material financial risks resulting from climate change (traditionally considered only a moral or ethical concern) in investment portfolios, according to legal counsel.

EU Workplace Pensions Now Required to Incorporate ESG Issues

Posted on December 6, 2016

Posted in Environmental, Social, and Governance, European Environmental and Public Law, Green Finance

By Paul Davies and Michael Green

A new pensions directive was passed by the European Parliament on 24 November securing 512 votes (only 77 votes against and 40 abstentions), requiring EU workplace pension funds to consider environmental, social and governance (ESG) issues. This is considered a ‘landmark’ moment for responsible investment.

The new pensions directive stipulates that:

ESG criteria is to be considered in investment decisions and their practical implementation should be disclosed in regular reports.

Pension funds have to include their ‘stranded asset‘ strategy as part of their risk management procedure.

The integration of ESG considerations will not be considered as conflicting with fund managers’ fiduciary duties. Fund managers will not be exposed to legal liability for an alleged failure to act prudently by prioritising ESG factors over financial risk returns in their investment decisions.

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