Question to the Department for Work and Pensions:

To ask Her Majesty's Government what steps they take to ensure that pension funds and other institutional investors comply with the UN Guiding Principles on Business and Human Rights

The Government has taken action to ensure that environmental, social and governance (ESG) factors are taken into account by institutional investors.

2018 changes to the Occupational Pension Schemes (Investment) Regulations require occupational pension schemes to have policies on financially material ESG factors and on stewardship of their investments. Trustees are also required to report annually on how these policies have been implemented. These policies may include considerations such as those set out in the UN Guiding Principles on Business and Human Rights and in relation to issues such as crimes against humanity and genocide.

There are also similar expectations on providers of contract-based pensions in respect of their pension investments. The Independent Governance Committees (IGCs) of these firms are expected to consider and report on their firm’s policies on ESG issues and stewardship for the products that the IGCs oversee.

The importance and growth of investing in line with ESG considerations is a focus area of the Asset Management Taskforce – a regular forum chaired by the Economic Secretary to the Treasury bringing together Government, industry, the Financial Conduct Authority (FCA) and other stakeholders. On 24 November 2020, the Asset Management Taskforce published “Investing With Purpose: placing stewardship at the heart of sustainable growth”. This report’s clear recommendations, which apply across the investment chain, will further enhance the UK’s stewardship regime aim to ensure that asset managers are focused on delivering long-term, sustainable benefits for investors, the economy, the environment and society.

The UK Stewardship Code, which was strengthened in 2020, also sets out at Principle 7 the expectation that its investor signatories systematically integrate material social issues into stewardship and investment. Stewardship by asset owners and asset managers involves making informed decisions about where to invest, and proactive oversight of assets once invested. The FCA’s disclosure of commitment rule to the Stewardship Code, as well as rules promoting disclosure of asset managers’ engagement and investment strategies under Revised Shareholder Rights Directive (SRD II), holds asset managers accountable and promotes the importance of stewardship. Consistent with the FCA’s objective to make relevant markets function well, stewardship activities improve market quality and integrity, and help create sustainable, long-term value for clients and beneficiaries, while having wider economic, environmental and societal benefits.

The Government would also expect institutional investors to be monitoring risks to their investments posed by breaches of international human rights law.

We recognise that some investors have not focused on social factors as much as environmental factors such as climate change. The Department for Work and Pensions has therefore written to 40 large schemes to understand their current practices. It also intends to seek views on whether occupational pension schemes’ policies and practices on social risk factors are sufficiently robust and what the Government could do to ensure that trustees are able to meet their legal obligations in this respect.