Wind TurbinesIf you are a trustee of an occupational pension scheme, it is time to start preparing for the new ESG requirements, some of which kick-in on 1 October 2019.

What is ESG?

Environmental, social and governance considerations have come to the fore in recent years especially in the context of pension scheme investment. In its recently updated guidance, the Pensions Regulator (TPR) notes that many scheme members will be invested for a long time and will be exposed to longer term financial risks which potentially include risks that “could be financially significant, both over the short and longer term. When setting investment strategies, we expect trustee boards to take account of risks affecting the long-term financial sustainability of the investments.”

Actions trustees need to take


Trustees need to consider their policy in respect of financially material considerations and ensure that it includes consideration of ESG factors. From 1 October 2019 trustees must state their policy in relation to financially material considerations in their statement of investment principles (SIP), including how those considerations are taken into account in the selection, retention and realisation of investments. TPR states that in seeking to apply their policy in relation to ESG issues in investments, trustees should carefully consider the demographics of their schemes and “the nature of potential ESG issues that may affect the risk adjusted return that members may receive.” Trustees should also review the extent (if at all) to which non-financial matters, such as members’ views, are taken into account when choosing suitable investments.


Trustees should take this opportunity to reconsider how (and/or whether) they consider and monitor the performance, strategy, risks, social and environmental impact and corporate governance of companies in which scheme funds are invested. Trustees’ policy on stewardship must also be included in the SIP by 1 October 2019.


Each SIP will need to be reviewed and revised before 1 October 2019, even if this is outside of the usual triennial cycle. While the new requirement for trustees to have a policy in relation to arrangements with asset managers does not need to be included in the SIP until 1 October 2020, trustees might find this a good time to consider that also.

Finally, trustees should consider how they will make the SIP (and eventually the implementation report – which records how certain of the trustee policies have been implemented) available on a publicly accessible website. Trustees of schemes providing DC benefits (excluding where such benefits relate to AVCs only) must publish their SIP in a publicly available format from 1 October 2019 (and implementation report from 1 October 2020). Schemes providing pure DB benefits must publish their SIP in a publicly available format from 1 October 2020 (and their shorter form implementation report from 1 October 2021).

Trustees of DB, hybrid and DC schemes will all be affected by the changes to some extent. This is not just a tick box exercise and trustees should ensure that they are prepared to comply with the new requirements.