Trustees’ investment duties have been under scrutiny for some time now, in particular, whether, and to what extent, trustees should take account of environmental, social and corporate governance (ESG) factors in their investment strategies. Following the Law Commission’s 2017 report on social investment by pension funds, the Government believes that, despite TPR’s updated investment guidance, “confusion and misapprehension…still exists”, with some trustees still thinking that ESG risks are irrelevant or run counter to their investment responsibilities. It is therefore proposing to make changes to the Investment Regulations.


Under the current Investment Regulations, trustees are required to report in their statement of investment principles (SIP), the extent, if at all, to which “social, environmental and ethical considerations” are taken into account in their investment strategy. This duty falls short of an absolute obligation.

The proposed changes are, amongst other things, intended to make clear that the financially material considerations trustees must take into account when making their investment decisions can include, but are not limited to, those arising from ESG, including climate change. The proposed removal of the current qualification ‘if at all’ is notable. It suggests that there will be a regulatory expectation that trustees should have considered ESG and climate change factors.

Trustees would also be required to produce a separate statement, which explains whether, and to what extent, the trustees have taken account of the views which, in their “reasonable opinion”, scheme members hold on financial and non-financial matters, in preparing the SIP. The consultation makes clear, however, that trustees will not be obliged to act on any member concerns, or invest in line with members’ preferences. The consultation closed on 16th July 2018. The Government plans to implement the proposed changes at the earliest opportunity this Autumn and to bring them into force around a year later, to allow trustees time to prepare for the changes. This would mean that the earliest date for the measures to come into effect is 1st October 2019.

What should trustees be doing now?

1. Trustees should discuss and analyse their beliefs on ESG risks and how those beliefs should apply to the scheme, bearing in mind the scheme’s funding position, covenant, and current investment strategy. Taking advice or having training should be considered. They may want to prepare a scheme-specific ESG policy to document their conclusions.

2. Trustees will, in due course, need to revisit their SIPs in light of the expected changes to the Investment Regulations. Employer consultation is required before a SIP is revised, and there may be value in engaging with the employer early on this issue.

3. The SIP is just the beginning. Trustees may also want to engage with their investment and/or fund managers, and consider whether their managers’ actions properly reflect the scheme’s investment principles and/or ESG policy.

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