The Pensions Regulator (TPR) has urged pension scheme trustees to go beyond minimum compliance with environmental, social and governance (ESG) duties, as it shared new resources on ESG considerations.

In a blog post, TPR climate and sustainability lead, Mark Hill, encouraged trustees to access the regulator's new suite of "essential" resources, to help build their knowledge and understanding and embed ESG decision making into every area of scheme governance and stewardship.

This comes after previous research from TPR found that, while the vast majority of trustees meet their ESG duties including in respect to climate change, many schemes only achieve minimum competence.

"This will not be enough to further improve portfolio resilience and deliver better outcomes for savers," Hill warned.

"ESG factors can be financially material to pension schemes. We want savers’ pots to be protected, and trustees are encouraged to make strategic decisions and take actions that take ESG factors into account."

Given this, Hill argued that the ESG and climate disclosures published by pension schemes should be the product of the strategic decisions and actions trustees have taken to protect savers’ outcomes from risk.

According to Hill, they should also demonstrate what trustees have done to take advantage of the opportunities presented by the UK’s ambition to transition to a net zero economy by 2050.

"But disclosure alone is not enough," he clarified. "Considering ESG factors as part of a scheme’s wider decision-making is vital to protect savers’ pensions. It should be business as usual for trustees, not something considered only when it’s time to complete a report."

Hill also warned that further regulatory action lies ahead, confirming that, as part of TPR's work to look at investment governance practice more broadly, it will also look at decision-making, including around ESG.

"We will constructively challenge trustees’ decision-making so we can be assured savers’ interests are being met," he continued, highlighting this as an "opportunity for trustees to work with advisers to develop their understanding, embrace best practice and maximise the opportunities while mitigating the risks material climate change and ESG factors present".

"While trustees do not need to be climate change experts, they should have sufficient knowledge and understanding to be able to identify, assess and manage climate-related risks and opportunities for their scheme," he added.

"And they need to be sufficiently knowledgeable to confidently question and challenge the advice they receive in the interests of savers."

Further support is also coming though, as Hill said that TPR is planning to review the ESG content in its introduction to investment module, as part of a broader refresh of its Trustee Toolkit.

"We are keen to work with industry to understand what works best," he said. "I’d urge trustees to use the material on our landing page to ensure they are doing everything they should to manage ESG factors and climate change risks in savers’ interests."

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