The Department of Work and Pensions (DWP) have launched a consultation on changes to regulations for pension fund trustees.

The consultation features a climate risk maturity model from consultancy Grant Thornton, as well as input from selected individuals and institutions – in particular Sackers, Hermes and Nico Aspinall. A key driver for the consultation, is the conclusions the DWP have reached:

  • We have…concluded that despite TPR guidance, confusion and misapprehension over trustees’ responsibilities persists
  • There is evidence of trustees incorrectly thinking that ESG risks are irrelevant or run counter to financially material concerns.

Broadly the consultation is around updating pension regulations to:

  • Require trustees to document:
    A - their approach to financially material environmental, social and governance (ESG) considerations, including climate change, in their statement of investment principles by October 2019
    B – their policies in relation to stewardship and engagement
  • Publish this online
  • Prepare or update their default investment strategy appropriately
  • Also document how they take account of members’ views
  • Report on their actions in these areas on an annual basis

The DWP also state that ‘scientific and public policy consensus is that climate change is a financially material risk’.

On a related note, Research by FTSE Russell aims to show that Trustees and Investment advisors may want to pay attention to the Green Economy as a financially material investment opportunity:

  • Substantial - at 6% of market capitalisation
  • Growing - while the fossil fuel sector shrinks
  • Diversified - by company size, with a small, medium and large cap players
  • Multifaceted - well diversified across sectors
  • Global - with exposures in the US, Japan and Europe
  • Outperforming - with FTSE Russell's green indices outperforming their benchmarks over the last 5 years