The government has launched a call for evidence to understand the extent to which social factors are integrated into pension schemes’ investment activities.
The 12-week review will collect views on how pension scheme trustees are considering social factors as part of their Environmental, Social, and Governance (ESG) policies.
The government introduced its first ESG policies in October 2019, requiring pension schemes to take due consideration of climate risk and other social factors in their investments.
The Pensions Scheme Act, passed last month, will go further, requiring pension schemes to report on the climate risk associated with their investments from this autumn.
Writing in City A.M., pensions minister Guy Opperman and Nimco Ali, chief executive of The Five Foundation, said the call for evidence “will help increase our collective understanding of what is being done here and around the globe” to ensure the risks presented by social factors are adequately considered by pension schemes.
“These risks may be caused by reputational damage to companies in which they invest, those companies being sued, or those companies experiencing a big and sudden disaster, like a factory collapsing,” they said.
However, a consideration of social factors may also spur positive investment opportunities, Opperman and Ali added. “The reality is that social and environmental factors are often linked, and progress in one should not, and cannot, mean sacrificing the other.”
The call for evidence, which will run from today until June this year, will ask pension stakeholders and schemes for their thoughts on the effectiveness of current policies.
It comes after Opperman last month wrote to 40 of the largest UK pension schemes seeking information about their ESG policies and stewardship practices.
The pensions minister said he was “proud of the progress we have made in bringing environmental and climate issues up the pensions agenda,” but warned that climate change was not the only social factor trustees needed to consider.
Ali, whose Five Foundation champions itself as The Global Partnership To End Female Genital Mutilation, argued that “the issues of diversity, gender and the empowerment of women are pivotal to global prosperity.”
“Economic justice for women… is one of the biggest opportunities we have for unleashing a new wave of investment growth, while at the same time reducing violence and discrimination against women and girls,” she said.
“Many opportunities could be missed at the moment by pension funds, which can provide healthy economic returns for investors, whilst helping to achieve better futures for African women.”