The tale of the Responsible Investment Guidelines
11 Dec 2019
Responsible Investment is currently at the forefront of most LGPS pension fund agendas. There has been increasing focus on both how Committees approach Responsible Investment (RI) and also how they communicate their approach to the wider world. Whilst the governance of the LGPS has always encouraged transparency, the societal and political pressures on pension funds means that effective communication is critical. To help Committees develop and communicate their approach to Responsible Investment, the England & Wales Scheme Advisory Board (SAB) has recently published Part 1 of their Draft Guidance on Responsible Investment.
The SAB states that the “aim of this first part of RI guidance is to assist and help investment decision makers to identify the parameters of operation within scheme regulations, statutory guidance, fiduciary duty and the general public law and the scope for integrating ESG policies as part of investment strategy statements. The Board wishes to make it clear that there is no intention to prescribe the extent to which ESG policies must be adopted as this must clearly remain a matter for local consideration and agreement in accordance with MHCLG’s statutory guidance”.
So far so good. But as the statement suggests, “Part 1” of the guidance is very much scene setting. It seeks to outline what the current RI landscape looks like, set out definitions and help explain the options available to LGPS funds from a regulatory standpoint (as well as summarising recent developments impacting Trust based schemes). The consultation started on 22 November and closes on 11 January 2020. Given “Part 1” of the guidance is largely factual, seeking to clarify RI related considerations rather than steer funds toward particular action, we would not expect significant changes or comments to this part of the consultation.
The SAB also states that stakeholders “are invited to submit details of case studies that evidence the successful adoption of ESG policies, in particular, those focused on the risks associated with climate change. Consultees are also invited to suggest other matters that should be included in the part two guidance”. The consultation therefore provides a great opportunity for Funds to state their case and showcase what they have been doing to integrate RI considerations into their investment approaches. This may include what impact RI considerations have had on Funds’ governance arrangements, investment policies or implementation of strategies (we include a number of RI articles in our recent Investment Perspectives). We encourage Funds to use this opportunity to respond in a way that helps shape the subsequent “Part 2” guidance.
The timescales for the sequel to the Part 1 guidance are significantly shorter than the 42 years it will have taken the Star Wars saga to conclude. The SAB is hoping to have a working draft of the Part 2 Responsible Investment guidance ready for its next board meeting on 3 February 2020. With the festive period fast approaching, and Part 2 of the guidance following swiftly in the New Year, it’s important all Funds consider how they want to input to this consultation and help shape the next chapter of this tale.