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<p>The department has introduced ESG-related legislation, including regulations aligned
with the Taskforce on Climate-related Financial Disclosures (TCFD), requiring trustees
to consider, assess and report on the financial risks of climate change within their
portfolios.</p><p> </p><p>These measures go beyond merely reporting a climate policy
and how it is implemented. They require trustees to put in place climate-related governance
and risk management, to assess the impact of climate change on their investment strategy,
to conduct scenario analysis, to set targets.</p><p> </p><p>This means that automatic
enrolment schemes will be encouraged to consider climate-related risks and opportunities,
and this is likely to influence their choice of products in their portfolio. The Government
thinks that ESG factors and their impact should be taken into consideration where
financially material, but the process of investing in individual products is down
to the market and trustees working within their fiduciary duty.</p><p> </p><p>I recognise
the risk of ‘greenwashing’, where investors can be misled on the quality of a product
described as being an ESG product and this must be tackled. To aid trustees in their
decisions, the department participates in an advisory group which supports the Financial
Conduct Authority in developing their proposed requirements that certain investment
products display a label reflecting their sustainability characteristics.</p><p> </p><p>Recent
research carried out by Corporate Advisor in their ‘ESG in DC Pensions’ report found
that 19 out of 21 pension providers surveyed deploy ESG tilts or screening overlays
on their default funds excluding specific companies or sectors with poor ESG ratings<sup><sup>[1]</sup></sup>.
The report found that three years ago, just five master trust defaults took this approach,
suggesting that schemes are increasingly turning to ESG-related products. I believe
the steps the department has taken to put in place the regulatory framework for consideration
of ESG factors will have contributed to the uptake here.</p><p> </p><p> </p><p> </p><p>
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