Trustees face tougher ESG disclosure rules from 2020

Part of a co-ordinated approach to improve company accountability to asset owners (and ultimately beneficiaries) throughout the investment chain, the regulations put into effect the EU Shareholder Rights Directive II.

They go further, and are much more detailed, than the changes already made to the investment regulations that trustees must put into effect by October 2019.

The existing October 2019 changes require schemes to publish more-detailed statements of investment principles, addressing financially material environmental, social and governance risks, such as climate change.

It will also need to include broad wording on trustees’ engagement and voting policies.

But from October 2020, all trustees must publish their SIPs online and report annually on their stewardship activities.

They will also have to set out in far more detail in their SIPs on how managers are incentivised to align their investment decisions with trustee policies and make decisions based on long-term financial assessments.

Commenting on the new regime, Stuart O'Brien, partner, finance and investment at Sackers, said: “Most trustees will be focusing at the moment on complying with the October 2019 changes requiring new wording in SIPs on ESG and broad stewardship policies. However, these new October 2020 requirements will require a lot more detail.”

He adds: “Trustees will need to speak with their advisers and their managers to get this information and formulate sufficiently detailed policies, updating their SIPs again by October 2020 and then reporting annually against them thereafter.”

The implementation of the new rules is likely to be challenging for a lot of pension trustees.

“Trustees are going to need to get into a lot more detail with their appointed managers than they have previously. Although October 2020 seems a long way away, behaviours may need to change significantly if the regulations are to be fully implemented,” said Mr O’Brien.