Industry welcomes DWP’s Taskforce on Social Factors’ recommendations

The taskforce, which launched in February, said it would help schemes manage social considerations including company workforce practices, diversity, equity and inclusion, and modern slavery issues.

In response to the consultation, the Association of Professional Pension Trustees (APPT) said the consultation would be “broadly helpful” for trustees since it provided clarity in defining social issues such as the gender gap and added the provision of practical measures in the guidance document were “key strengths”.

The association also noted the document provided a “comprehensive framework” featuring case studies and practical guidance that could assist trustees with the integration of social factors such as modern slavery, diversity and fair labour practices. It added the guidance would assist trustees to devise “pertinent” questions to ask investment managers and the report offers information to help improve trustees’ understanding of social issues and how to act on these.

APPT member Tegs Harding said while most trustees are “interested” in improving the social factors in the companies they invest in, due to limited governance time and budgets, trustees were not in a position to give social factors “sufficient attention”.

She said: “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.”

Also responding to the consultation, the Society of Pension Professionals (SPP) agreed the guidance would improve understanding of social issues in relation to pension scheme stewardship and investment decisions. It also welcomed the guide’s focus on “improving engagement” between schemes and their advisers and asset managers.

The SPP also noted data and analysis on social issues is “most useful” to support trustees’ decision making to achieve the scheme’s wider goals such as endgame planning and risk management. It recommended the taskforce’s guidance could be further developed to integrate schemes’ wider priorities, including on matters relating to employer covenant.

SPP investment committee member Harriet Sayer said: “‘The guide provides an innovative toolkit for improving trustee oversight of stewardship and the use of data on social issues. I hope the SPP’s feedback on the taskforce’s guide and recommendations will assist DWP’s important ongoing work to support the integration of social factors into trustee decision-making, including where investment matters interact with scheme funding and covenant analysis.”

However, while the Association of Consulting Actuaries (ACA) agreed the guidance was “very comprehensive” and a useful source of information to provide education on social factors from an investment perspective, it said its preference would have been for a “shorter” and “practical” guide for trustees as this would “engage the wider audience”.

ACA investment committee chair Vanessa Hodge commented: “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.”