The Department for Work and Pensions’ (DWP) Taskforce on Social Factors has launched an industry consultation on a new guide, which outlines more than 30 recommendations as to how the pensions industry can better incorporate social factors into investment decisions.

The taskforce, which launched earlier this year, aims to help pension schemes address the risks and seize the opportunities of the “social” element in environmental, social and governance (ESG) investing.

Key social factors under consideration as part of this work include workforce conditions and supply chains, community engagement, consumer protection and modern slavery.

The guide therefore outlines how pension trustees can better incorporate social factors into their investment and stewardship decision-making, by developing a common understanding and assessment of financially material social risks and opportunities.

In particular, the taskforce has urged pension trustees to ensure their asset managers consider social factors and integrate them into their investment strategy and stewardship.

Alongside this, the taskforce also suggested that the DWP should consider formally setting out expectations on addressing social factors, and that the Financial Conduct Authority (FCA) should consider setting out reporting expectations, alongside those required for environmental factors.

It also argued that asset managers should be able to demonstrate that they have influenced social outcomes through transparent reporting on engagement, voting and investment outcomes, including any social investment metrics.

The taskforce has requested feedback on its recommendations from across the industry, including pension scheme trustees, asset managers, regulators, government, data providers, investment consultants, lawyers, industry groups and trade bodies, NGOs and other businesses.

Taskforce chair and IFM Investors chief strategy officer, Luba Nikulina, stated: “We want to ensure that the recommendations are useful, practical and actionable, and support pension scheme trustees and the wider industry manage some of the key challenges around integrating social factor considerations into their work.

“I encourage the pension scheme sector to provide us feedback on the current draft of the report, as well as useful additions that we should take into account for the final report.”

Co-chair and Pension Protection Fund (PPF) stewardship manager, Daniel Jarman, added: “Of the three strands of ESG, social factors are often the least considered in investment decisions; but issues such as modern slavery, safety in supply chains, and remuneration practices, are all vitally important from an investment perspective.”

The taskforce will also hold a series of roundtable discussions as part of the consultation process. The group is requesting written feedback by 1 December.

The consultation was also welcomed by The Pensions Regulator. TPR interim director of regulatory policy, analysis and advice, Louise Davey, stated: “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.”

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