We were delighted to see the launch of the UK’s Taskforce on Social Factors several weeks ago. With support from the department for work and pensions (DWP), the advisory group will seek to support pension scheme trustees and the wider industry in effectively managing social issues in investments.
With some time having passed since first being announced by government, it is very positive that the taskforce is now up and running, particularly as social issues have steadily risen up the sustainable investing agenda for our members. We expect this focus to continue to naturally grow within the industry, and with it increasing awareness of some of the inherent challenges for schemes in addressing the diverse range of factors.
One core objective for the taskforce, as set out by DWP, will be to highlight good-quality data and data sources that could be leveraged by schemes to identify material social risks and opportunities on behalf of their beneficiaries. This will be an important task, as in many respects we see an abundance of social data and different sources available.
However, there are real challenges around the ‘decision-usefulness’ of much of this data, the lack of standardised metrics, and harnessing this in a systematic way. Important too will be closer co-operation between various participants in the investment chain, including among investors and service providers to further explore methodologies for social factors.
A second objective outlined for the group will be to monitor developments relating to the work of the International Sustainability Standards Board (ISSB). This will be especially relevant given that the ISSB – according to an announcement at the end of last year- may turn its focus to human capital and human rights (with a focus on labour rights and communities’ rights in the value chain) in future work. This is expected once it has finalised its sustainability and climate-related disclosure standards in the coming months.
A final objective for the taskforce will be to promote new, constructive thinking on how schemes can evaluate modern day slavery risks and supply chain issues. Some of the focus will be addressing a lack of streamlined guidance for trustees, with existing guidance tending to be mainly aimed at fund managers. There will be consideration of how schemes could better assess their managers and funds’ policies here. We hope this focused work on modern day slavery will create a blueprint for deeper work on other priority social topics in future.
Government must go further on social issues
Separately to all of this, the role of policymakers may need further direct attention to promote a more consistent and supportive policy environment that can enable action from investors and businesses in the UK.
One reason for this emphasis is the lack of enforcement we have seen of a number of regulations relating to pressing social issues. This includes companies complying with modern day slavery reporting requirements under the Modern Slavery Act 2015.
Another example has been delays in recent years to gender pay gap enforcement, sending negative signals to UK companies, our members, and wider stakeholders. Government policymaking should ensure that rules can strengthen effective action on social, not only environmental issues, and are then appropriately enforced following implementation.
Clarity from politicians and regulators on their latest expectations (including in relation to company engagement) on the role they expect trustees to play in addressing social challenges could be beneficial.
Finally, we want to see greater recognition of the need for schemes to actively consider financially material social factors – to which they may be exposed – when making investments and engaging in stewardship. We hope this taskforce helps to make the case as much as possible that this is not in pursuit of an overt political agenda, but necessary for schemes to help fulfil their fiduciary duty.
Governments and wider stakeholders around the world are increasingly turning their attention to social factors and mandating new requirements, including around supply chain due diligence and human rights. The work of the taskforce will be very important in advancing the UK’s work in this relatively under-served area, and a necessary task to progress towards a more sustainable future.