07 October 2019

ESG is not a new concept, but in the run up to the 1 October 2019 deadline for trustees to include changes to occupational pension scheme statements of investment principles (SIPs), many trustees will have become more aware of ESG. In this article we consider what other changes are on the horizon.

What is ESG?

As a recap ESG relates to taking into account environmental, social and governance considerations that affect returns on investment, whether positively or negatively.

What changes have we recently seen?

In schemes with at least 100 members, from 1 October 2019, trustees should have updated their SIP to include their policy in relation to financially material considerations over the appropriate time horizon, which the trustees should consider when making investment decisions, including ESG factors. For these purposes the appropriate time horizon is open to interpretation, being the length of time that the trustees of a trust scheme consider is needed for the funding of future benefits by the investments of the scheme. The regulations introducing these amendments (Recent Changes) are the Pension Protection Fund (Pensionable Service) and Occupational Pension Schemes (Investment and Disclosure) (Amendment and Modification) Regulations 2018. The Recent Changes also require the updated SIP for Defined Contribution (DC) schemes to be available on a publically available website from 1 October 2019.

Many trustees have been concerned with whether they should be consulting with members on their views regarding ESG. However, the law requires trustees to act in the best financial interests of beneficiaries (this was confirmed in the 1985 case of Cowan v Scargill) and generally to disregard personal preferences or ethical views of members (or indeed the trustees themselves). The legislative changes that we have seen in the Recent Changes do not require trustees to consult with members for their views regarding ESG factors, nor do they set out to what extent ESG factors should be considered in trustees’ investment strategies, but the focus is on them as financial rather than non-financial considerations.

What requirements are on the horizon?

From 1 October 2020: 

Trustees will need to amend their SIPs to include information on their policies regarding how asset managers’ performance and remuneration are reviewed in line with trustees’ policies. In the context of ESG, information available from asset managers on ESG is currently patchy and without a consistent comparison available it may be difficult to make an informed decision on ESG factors.

SIPs will also need to be updated with information on the duration of any arrangements with asset managers.

Defined Benefit (DB) SIPs will need to be publically available on a website free of charge.

From 1 October 2021:

Trustees of DB schemes will need to publish information in their annual reports for the previous year within 7 months of the end of the scheme year on how the SIP has been followed together with information on how the trustees voted in the past year.


As trustees are now required to have a policy on ESG as part of their SIP we are likely to see increased focus on investment decision-making taking into account ESG considerations.

If you would like to discuss the changes in the ESG landscape and the upcoming requirements for pension trustees please come and meet us at stand 500 at the PLSA conference next week.

This article was written by Heather Musk in the Financial Services team.

Key contact

Richard Knight

Richard Knight Partner

  • Head of Pensions Practice
  • Pensions Services
  • Pensions Legal Advice

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