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March 1, 2023

UK government launches social task force for pensions industry

Chinese factory workers
The task force is aimed at helping scheme trustees identify and manage the financial risks linked to modern slavery and supply chains. (Photo: Elizabeth Dalziel/AP Photo)

The task force will look to identify reliable data sources to help schemes navigate “social risks and opportunities”.

A new task force has been set up in the UK to help pension schemes manage social factors including the use of data, as well as supporting them as reporting standards such as those by the International Sustainability Standards Board are developed.

The UK government consulted in 2021 on schemes’ consideration of “social risks and opportunities”. The then pensions minister Guy Opperman said at the time that “it has never been my intention that climate change should be trustees’ sole [environmental, social and governance] consideration — not least because action on climate change is often linked to action on wider social factors”.

“Many pension scheme trustees’ policies in relation to social factors are high level and unilluminating,” he continued. “There is a concern that trustees are ill-equipped to deal with financially material social factors in their investments,” such as their understanding of what occurs in supply chains. 

After writing to 40 schemes, Opperman found their performance on ESG policies and stewardship approaches to be “mixed”. 

The consultation asked schemes a range of questions, including the extent to which they consider social issues, whether they have ever undertaken stewardship, and if delegated to their asset managers, the extent to which they are monitored on their management of social factors.

Announced last year, the government-led Taskforce on Social Factors was launched on February 28. 

Support on ISSB

UK pension schemes are already expected to consider climate change when making decisions. Schemes with at least £1bn in assets must publish an annual Task Force on Climate-related Financial Disclosures report.

They were recently threatened with fines by the Pensions Regulator over their compliance with ESG disclosure rules. In the spring, TPR will launch a regulatory initiative to check whether schemes are publishing the correct ESG data.

A group of local government pension schemes, meanwhile, pledged in February to vote against the chairs of oil producers who fail to meet climate benchmarks, as well as banks’ sustainability committee chairs when they fall short on transition metrics.

Their ability to measure social factors, however, has proven more challenging.

The new social task force has three key objectives. It will work towards finding reliable data sources to help schemes “assess and manage financially material social risks and opportunities”. 

It will also report on ISSB developments, as well as those concerning other standards. 

Earlier in February, the ISSB confirmed that its first two sets of sustainability disclosure standards will come into force at the start of 2024. Launched in 2021, the standards are being created to aid companies in their reporting on how they manage climate and ESG issues.

Further, the task force will “develop thinking” on how scheme trustees can identify and manage the financial risks linked to modern slavery and supply chains.

“Every investment has an impact on people as well as the planet and social factors are crucial for long-term investors,” the task force’s chair, Luba Nikulina, said.

“Right now, the investment industry doesn’t have a comprehensive way to measure these factors,” she added.

Pension Protection Fund stewardship manager Daniel Jarman, who is also a member of the task force, said: “The importance of understanding and integrating social factors into the investment process has come to the top of the agenda for investors in recent years. However, the range and quality of data on social factors continues to be a challenge.”

A service from the Financial Times