Consultation outcome

Annex 1: Ministerial Letter to largest 50 pension schemes

Updated 7 July 2021

Clarifying and strengthening trustees investment duties on ESG and climate risk

I am writing to you to remind you of the amendments to the Investment and Disclosure regulations which come into force on 1 October 2019. With this package, I have sought to put beyond doubt:

• the duties for pension scheme trustees to take account of financially material considerations arising from environmental, social and governance (ESG) considerations, including climate change – just as they would any other financial risk
• the requirement to have a policy on stewardship of the assets, including both engagement and voting, however the assets are held
• the requirement to have a policy on how members’ views are taken into account, although I have been clear that trustees are never obliged to take account of members’ views

I believe that the circumstances in which neither climate risks, nor ESG risks more broadly, are financially material are likely to be extremely limited – and therefore that it is part and parcel of trustees’ fiduciary duties to take account of these risks when setting out investment strategy and to clearly explain that to investors. In the same way, I believe it is part of trustees’ fiduciary duties to have a stewardship policy, even if that policy is limited to engagement and monitoring of the asset managers who engage with investee firms and vote on trustees’ behalf. Finally, the Law Commission have twice concluded that trustees can take account of members’ views where the “two step test” is met.

In light of the coming into force of the Regulations, and Government and Parliamentary interest in pension scheme investment, I am writing to ask some further questions about the actions undertaken by your scheme.

Question 1:

What substantive changes have you made to your investment strategy in the last 3 years to take account of ESG and climate change and when have you made them?

Question 2:

What substantive changes have you made to your stewardship policy in the last 3 years to ensure that the pension scheme trustees act as engaged investors?

Question 3:

Have you made any substantive changes to your policy on taking account of members’ views in the last 3 years? If so, what changes have you made and when did you make them?

Question 4:

Are you planning to make any further changes to your strategies and policies on the above topics in the next 12 months?

Question 5:

Does your scheme make climate disclosures in line with the Task Force on Climate-related Financial Disclosures (TCFD) framework? What aspects of TCFD’s recommendations do you meet? Do you plan to meet more in the next 12 months?

Question 6:

Are there further specific actions government might take to impress upon pension schemes – or others – the materiality of climate change risk and how it might be minimised. If so, what are those actions?

Question 7:

Who are your asset manager/s and do you believe they are truly acting on the changes I and government are seeking?

Question 8:

Finally, I would appreciate sight of the ESG/climate change, stewardship and non-financial factors (members’ views) section of your statement of investment principles, or details of where these are published online. I am compiling a record so I can both monitor compliance and celebrate and support best practice.

Guy Opperman MP
Minister for Pensions and Financial Inclusion