Pension industry organisations have welcomed the Taskforce on Social Factors’ new guidance for trustees, although some areas for improvement have been highlighted.

The Department for Work and Pensions’ (DWP) taskforce launched a consultation on the guidance, which outlines more than 30 recommendations as to how the pensions industry can better incorporate social factors into investment decisions, earlier this year.

A number of industry organisations have since welcomed the guidance, with the Society of Pension Professionals (SPP) suggesting that it will help support a better understanding of the social issues relevant to pension scheme stewardship and investment decisions.

In its response, the SPP agreed with the taskforce’s recommendation that trustees should identify and prioritise issues which are material within their portfolio, and its efforts to develop a materiality framework to help trustees better focus their dialogue with asset managers and investment consultants in relation to social issues.

The group also welcomed the taskforce's support for trustees and asset managers in meeting their existing disclosure obligations, suggesting that it is particularly helpful that the guide proposed non-binding recommendations to develop market practice, rather than mandatory requirements for trustees, particularly in relation to reporting.

However, the SPP suggested that some improvements could be made.

In particular, the group said that data and analysis on social issues are most useful when they support trustees in making decisions which help achieve the wider goals of the scheme, such as endgame planning and risk management.

Given this, it said that the guidance could be developed to better integrate within the wider priorities and circumstances of UK pension schemes, including on covenant matters.

SPP Investment Committee member, Harriet Sayer, added: “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.”

Adding to this, Association of Consulting Actuaries (ACA) Investment Committee chair, Vanessa Hodge, said that while the guide is “very comprehensive” and useful source of information and references, a shorter, practical guide aimed at trustees would have been preferred.

“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,” she explained.

“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.”

A review group from the Association of Professional Pension Trustees (APPT) also stressed the need to acknowledged that social factors impact different pension schemes in different ways and how material each of the steps outlined in the guidance is will vary.

In addition to this, the group said that it would welcome further research into any links between implementing good outcomes on social policies and improving return on investments.

Despite these concerns, the group agreed that the guide will be “broadly helpful” for scheme trustees, highlighting the report’s clarity in defining social issues, such as the gender gap, and its provision of practical measures, as particular key strengths.

APPT member and lead on the review, Tegs Harding, commented: “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.

"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.

“Overall, the unanimous view of our reviewers was that additional coverage on specific challenges, best practices in implementation, potential pitfalls, and real-world examples of successful integration of social factors in pension portfolios would enhance the guidance."

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