Three months and counting…getting serious about Responsible Investment
01 Jul 2019
Trustees of DB and DC schemes now have just three months to address the requirements of the 2018 investment regulations, to agree their approach to responsible investment and update their Statement of Investment Principles. A more recent change in regulation has levelled the playing field with DB trustees now being required to publish their SIP online and report on compliance, albeit the deadlines are 12 months later.
The objective of the regulations is to change behaviour by asset owners. Responsible investment is not and should not be a box ticking exercise. Rather it should form an integral part of trustees’ approach to investment decision making to ensure that, where possible, the risks posed by Environmental, Social and Governance (ESG) factors are considered in to the extent that they could materially affect financial outcomes. This can include actions such as building knowledge through training sessions, ensuring that when material changes to investment arrangements are made, questions are asked about the extent to which ESG issues are relevant and providing greater challenge to those, such as investment managers, who act on your behalf.
It’s been encouraging to see the actions of some begin to change in response. One client has added an explicit item to all their investment manager meeting agendas to ensure that the subject is explored; the outcome has been discussion on issues that may not otherwise have been explored with the trustees gaining a better understanding of their managers processes and areas of added value. Another client reviewed the benchmark of their passive equity portfolio and reallocated capital to a strategy that reduces exposure to carbon risks, consistent with their beliefs on climate change – they are planning to do more.
These two examples offer just an indication of the actions that trustees are taking. The possibilities however are far greater and it is for each trustee group to determine their own path and determine what sort of responsible investors they are going to be: Core, Active or Leader? We have been pleasantly surprised at those who are striving to be more than Core.
For those trustees who are still to consider their approach, our guides to responsible investment for DB and DC schemes may help you update your policy.