Pension Scheme ESG Essentials: A Guide from the SPP
The Society of Pension Professionals (SPP) has released a guide outlining key Environmental, Social, and Governance (ESG) considerations for pension schemes.
The guide clarifies expectations for trustees when dealing with ESG issues, including requirements like the Statement of Investment Principles (SIP) and implementation statements.
Scheme Requirements
- Schemes with 100+ members must comply with SIPs, detailing how they consider financial materiality, stewardship, and arrangements with investment managers.
- Trustees need to explain how they followed their SIP policies in separate statements. Defined contribution (DC) schemes have broader requirements than defined benefit (DB) schemes, whose focus is mainly on engagement.
Voting and Reporting
- Schemes need to engage in detailed reporting of important votes as part of their SIPs, considering different engagement objectives at the fund level.
- Trustees face climate-related reporting obligations, with the Taskforce on Climate-related Financial Disclosures (TCFD) being mandatory. While not mandatory for many schemes, net-zero targets are encouraged.
- The Local Government Pension Scheme (LGPS) has its own requirement to calculate carbon footprints.
Working with Investment Managers
The guide also offers guidance on interacting with investment managers and consultants, highlighting their separate requirements.
- Investment managers must adhere to the Sustainable Disclosure Requirements (SDR), with anti-greenwashing rules also in place. Annual TCFD reports are mandatory, alongside SDR disclosures at entity and consumer levels.
- Pre-contractual and sustainability requirements exist for both institutional and retail investors, with an optional labelling system offering four sustainability labels.
- Anti-greenwashing rules and an SDR timetable are set for different stakeholder groups.
- When working with managers and consultants, schemes must follow responsible investment principles, considering exclusions and diverse engagement targets.
SPP President's Comments
SPP president Sophia Singleton welcomes the guide, stating it builds upon previous guidance and provides valuable information for trustees through checklists, summaries, case studies, and in-depth explanations. She acknowledges ongoing uncertainty in this area and expresses hope that the SPP guide will enhance awareness and understanding.
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Source: Professional Pensions
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