Evolution of investment strategies: key shifts and trends
The Pensions Regulator, a key player in the industry, is leading the charge towards more climate-conscious pension schemes. As part of an industry working group on climate change, the Regulator plans to consult on guidance for pension schemes on climate-related practices.
Starting from 1 October 2020, pension scheme trustees, particularly those managing Defined Benefit (DB) or Defined Contribution (DC) schemes with 100 or more members, will need to update their Statements of Investment Principles (SIP) to reflect these changes.
The Occupational Pension Schemes (Investment and Disclosure) (Amendment) Regulations 2019 require trustees to formally set out their investment policies and principles in a Statement of Investment Principles (SIP). Trustees must demonstrate adherence to these policies in an annually published Implementation Statement.
Key requirements include clearly describing investment principles and policies, detailing arrangements made with asset managers, and reporting on how these policies have been followed over the year. The updated SIP must now include the trustees' policy on taking account of environmental, social, and governance (ESG) considerations, the views of members and beneficiaries, and the exercise of rights and engagement activities.
Trustees may require investment and legal advice to navigate these new requirements. The Pensions Regulator has issued guidance for both DB and DC scheme trustees, with DB trustees likely to find the DC guidance helpful.
By 1 October 2020, DB schemes with 100 or more members must publish their SIP on a website so that it is publicly available free of charge. By 1 October 2021, DB schemes will need to include a statement on how they have complied with their (updated) policy on the exercise of voting rights and engagement activities, and publish this statement online. DC schemes will need to include similar details in their annual report or 'implementation statement'.
The Pensions Regulator also plans to release guidance on Task Force on Climate-Related Financial Disclosures for pension schemes as part of a new governance code. The Employer Covenant Practitioners Association urges covenant advisers to consider fully the implications of climate change in their work.
The changes are a sign of the wider recognition of the importance of environmental risk. The Pensions Regulator confirms that climate change is a risk to long-term sustainability that pension trustees need to consider. This recognition is echoed by other regulatory bodies, as seen in their joint statement welcoming the government’s July 2019 green finance strategy.
For DC schemes or sections, including those with less than 100 members, the SIP for the default arrangement has new requirements, such as publishing the SIP on a publicly accessible website and preparing an 'implementation statement'. The Pensions and Lifetime Savings Association has issued a guidance note on ESG and stewardship to aid trustees in these efforts.
In conclusion, the new regulations aim to strengthen transparency and accountability concerning investment decision-making and the oversight of asset managers. Trustees are encouraged to work towards compliance with these changes to ensure proper governance and disclosure around investment choices and stewardship.
- The Pensions Regulator, in collaboration with the industry, is promoting a shift towards more sustainable finance practices, particularly in wealth management and business, by encouraging pension schemes to incorporate climate-related practices and ESG considerations into their investment policies.
- Technology is playing a crucial role in this endeavor as trustees seek investment and legal advice to navigate the updated Statements of Investment Principles (SIP), with valuable guidance provided by industry organizations such as the Pensions and Lifetime Savings Association.
- Compliance with these new regulations by industry players like pension schemes will help ensure personal-finance decisions are made with a long-term, sustainable approach, addressing environmental risks and fostering responsible investing.
