Stuart O’Brien: Be aware of updates to statements of investment principles

Stuart O'Brien

From October 2019, trustees of all occupational pension schemes with more than 100 members must update their pension scheme’s statement of investment principles (Sip) to cover the trustees’ policies on environmental and other sustainable investment issues.

It is important that employers are aware of these changes and discuss approaches with their trustee boards.

A Sip is a written statement which governs the trustees’ decisions about the pension scheme’s investments. Regulations spell out various items that the Sip must cover, including the kinds of investments to be held by the scheme and the way risks are managed.

At present, trustees are required to cover the following in their Sip: ‘the extent (if at all) to which social, environmental or ethical considerations are taken into account in the selection, retention and realisation of investments’. Many schemes have not taken this very seriously to date, relying on the ‘if at all’ wording to actually do very little.

However, over the course of last summer, the DWP ran a consultation on clarifying and strengthening trustees’ investment duties. This included proposals on changing the Sip requirements to include a policy on environmental, social and corporate governance (ESG) considerations.

Consequently, trustees will need to revisit their Sip before October 2019 to ensure it sets out the following: how ESG issues, including climate change, are taken into the scheme’s investments as financially material factors, and the trustees’ approach to voting and other engagement activities in respect of the investments they hold.

Any change to a scheme’s Sip must be consulted on with the scheme’s employer. Although trustees are responsible for a pension scheme’s strategy, it is important that employers are happy with the approach being taken on investment issues.

Organisations which take care to make sure their own environmental policies are fit for purpose and for their employees should not neglect the approach being taken by their pension schemes.

Stuart O’Brien is a partner at law firm Sackers