DWP proposals aim to call time on the “tick box” approach to stewardship

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The DWP have today launched a consultation on new draft guidance which sets out a significant increase in DWP’s expectations for stewardship best practice in relation to the Statement of Investment Principles and Implementation Statements.

The consultation entitled 'Climate and investment reporting: setting expectations and empowering savers' also proposes that trustees of schemes subject to the Taskforce on Climate-related Financial Disclosures (TCFD) will be required to show how their investments are aligned with the goal of limiting the increase in the global average temperature to 1.5°C above pre-industrial levels. Currently, TCFD requirements apply to schemes of £5bn and over and master trusts and will be extended to schemes of £1bn and over next year.

Claire Jones, Head of Responsible Investment at LCP, commented: "Today's proposals mark a significant step-change in expectations on pension schemes to play their part in stewardship. For many at the moment, it’s a case of going through the motions, so the proposed guidance on stewardship reporting shows that the Government is serious about raising standards for pension schemes in this area. If DWP gets its way, Statements of Investment Principles, which almost all trustees have to prepare and which detail the basis on which they invest their scheme’s assets, will no longer be one-size-fits-all statements. They will instead be tailored documents that reflect scheme-specific priorities. This is good news as it puts the focus on how important stewardship is and how it plays a vital role in safeguarding pensions for the future.”

“Requiring trustees to measure and report on the alignment of their schemes’ assets with the Paris Agreement will provide a more rounded picture than just focusing on emissions alone. It will really help trustees understand and manage their scheme's exposure to climate-related risks and opportunities. However, data will be a big issue. Asset managers and others will need to get better at collecting and measuring the data, particularly in relation to private market assets.”