Trustees expected to engage with consultation on social factors

A guide on how social factors can be better incorporated into investment decisions has been launched.

The Taskforce on Social Factors (TSF) has published a consultation to help pension scheme trustees better incorporate social factors into investment decisions and stewardship policies.

The document entitled ‘Considering Social Factors in Pension Scheme Investments: 

Guide from the Taskforce on Social Factors’ includes a proposed framework for trustees to use for addressing social factors in schemes and recommendations for the pensions sector. 

Commenting on the 35-page document, Louise Davey, the Pensions Regulator’s interim director of regulatory policy, analysis and advice, said: “Trustees should already be considering financially material social factors as part of their investment stewardship and risk management. 

“We expect the taskforce’s guide will be a welcome tool to help trustees form their approach to addressing social factors. 

“We encourage them to engage with the consultation and help shape the final version.”  

The TSF’s guide defines social factors as a wide range of topics including payment terms for suppliers, anti-microbial resistance, links to armed conflict, vaccine fairness and health impact on consumers and communities. It is hoped that this will help the trustees of trust-based occupational pension schemes with at least 100 members, who are currently required to prepare a statement of investment principles which includes their policies in relation to financially material considerations including environmental, social and governance considerations.

Helpful clarity

The Association of Professional Pension Trustees (APPT) said the document will be broadly helpful for pension scheme trustees because it provides clarity in defining social issues, such as the gender gap, modern slavery, diversity, and fair labour practices. 

The guide also helps trustees formulate pertinent questions to ask investment managers.

Tegs Harding, APPT member, said: “Most trustees are interested in improving social factors in the companies with whom they invest but with limited governance time and budgets, and the view that unless demonstrably financially beneficial such factors should otherwise be discounted, trustees are not necessarily in a position to give this sufficient attention. There is a shared perspective that the report seeks to address this and provides a way forward for scheme trustees.

“We would still welcome further research into any links between implementing good outcomes on social policies and improving return on investments.

“Despite this, the report is seen as providing a practical way forward for trustees by offering draft clauses, case studies, and a systematic materiality assessment framework. It is acknowledged for navigating the complexities of integrating social factors into portfolios and providing valuable insights and recommendations.”

Short and snappy

However, Vanessa Hodge, chair of the Association of Consulting Actuaries’ investment committee, welcomed the document, but said that it should have been shorter. 

Hodge said: “The guide is very comprehensive and is a useful source of information and references. It will be a useful resource to raise awareness and provide education on social factors from an investment perspective. 

 “Our preference would be to have a shorter, practical guide aimed at trustees.  A shorter guide would engage the wider audience and interested readers can refer to the existing guide for more information.  Our concern is that the length and depth of the document may deter your target audience from reading it. 

“We note the guide recommends ‘Advice on social factors to be included in investment advice as standard, not as an additional expense’. We agree that social factors should be integrated within investment advice, rather than a standalone consideration, but the greater depth of analysis recommended in the paper would likely incur a separate cost due to the client bespoke nature of the analysis.” 

Pension schemes can respond to the consultation and read the proposals here.