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Stewardship

Important

Early draft of the code of practice

This code is not in force yet. It is an early version for the new code of practice consultation.

To give us feedback on issues such as the design, usability and navigation of this code, email us at webfeedback@tpr.gov.uk.

You can also read more information about the consultation.

Published: 17 March 2021

Environmental, social and governance (ESG) focuses on the wider risk and return considerations for trustees in their decision-making and investment management practices.

Under section 249A of the Pensions Act 2004,ST1 governing bodies of certain schemes must establish and operate an effective system of governance (see Scheme governance) including internal controls (see Managing risk using internal controls). However, there are certain exemptions.ST2 This should include consideration of ESG matters relating to scheme investments. These governing bodies should take an active role in exercising the whole range of rights and responsibilities given to them through their investments.

Governing bodies required to prepare a Statement of Investment PrinciplesST3 must have a policy on the exercise of the rights attaching to their investments.ST4

Governing bodies of schemes with 100 or more membersST5 should incorporate these matters into the scheme’s own risk assessment and document them appropriately. Learn more in Own risk assessment.

We recommend that governing bodies with investment responsibilities follow the principles set out below, even if they are not legally required to have an effective system of governance.

Governing bodies should:

  • identify steps to exercise the rights and responsibilities relating to the investments held, whether directly or indirectly
  • ensure governing bodies are familiar with their investment manager’s stewardship policies. See Stewardship.
  • enable governing bodies to use investment managers’ stewardship policies as selection criteria and seek to influence them as appropriate.
  • ensure the monitoring and regular review of investment managers’ stewardship practices
  • make sure governing bodies take into account the potential long-term positive and negative impacts of investment decisions on member outcomes
  • seek to follow, where appropriate, the Financial Reporting Council’s UK Stewardship Code
  • identify and account for the systemic risk of climate change in decisions made about the scheme’s investment and funding. See Climate change.
  • include engagement with investee companies, policymakers and collaborative industry initiatives, whether directly or via investment managers, to mitigate these risks
  • consider cooperation with other institutional investors in engaging with investee companies on ESG issues

Legal references

ST1Article 226A of The Pensions (Northern Ireland) Order 2005

ST2Section 249A(3) of the Pensions Act 2004
[Article 226A(3) of The Pensions (Northern Ireland) Order 2005]

ST3Section 35 of the Pensions Act 1995
[Article 35 of the Pensions (Northern Ireland) Order 1995]

ST4Regulation 2(3)(c) Occupational Pension Schemes (Investment) Regulations 2005
[Regulation 2(3(c) Occupational Pension Schemes (Investment) Regulations (Northern Ireland) 2005]

ST5Regulation 3(8)(h) of the Occupational Pension Schemes (Governance) (Amendment) Regulations 2018
[Regulation 3(8)(h) of the Occupational Pension Schemes (Governance) (Amendment) Regulations (Northern Ireland) 2018]