The Market Oversight: ESG report sets out findings from TPR's review of how pension trustees are complying with wider ESG duties.
Mark Hill, Climate and Sustainability Lead at TPR, said: “A focus on compliance only is a missed opportunity. Trustees should aim to fully demonstrate their engagement with material ESG considerations whether climate impact, nature loss or social factors and invite challenge in the interest of protecting outcomes for savers.
“While the vast majority (99%) of in-scope schemes provided weblinks to relevant ESG disclosures, we found too many smaller schemes opted for minimum compliance in respect of the content of those disclosures.”
Report findings
According to TPR’s report, a check of around 3,500 scheme returns from defined contribution, defined benefit and hybrid schemes found only around 1% failed to provide weblinks to relevant ESG disclosures - statements of investment principles (SIPs) and implementation statements (IS). And only approximately 2% of those links could not be accessed by TPR staff. Working links were requested from all schemes that provided one that could not be accessed.
Machine-reading techniques, supplemented by TPR staff, were used to review SIPs and IS from around 375 schemes. TPR also carried out an in-depth review of SIPs and IS provided by around 50 schemes.
The report also said that:
• too many smaller schemes opted for minimum compliance with ESG aspects of SIPs and IS
• if trustees believe they lack the expertise or scheme governance scale to be able manage financially material ESG risks effectively, they should consider whether consolidating their schemes could improve the way in which these risks are managed for their members
• TPR wants to see more evidence of trustee oversight where management of financially material risks, engagement and voting had been delegated to an investment manager.
Pooled funds
Where schemes are invested in pooled funds, TPR said that there are still options for trustees to show active engagement and advocate for their scheme’s policies.
These include requesting that asset managers vote on issues in a way consistent with the trustees’ own stewardship priorities or joining collaborative investor initiatives.
Mark added: “Trustees must provide appropriate detail in their reporting and show they are influencing and taking ownership of ESG considerations, even where responsibilities are delegated, or where the scheme is invested in pooled funds.
“As ESG disclosure reporting requirements are likely to continue to expand, trustees may wish to voluntarily become early adopters of reporting requirements relating to, for example, nature, biodiversity and social factors.”
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