Sin stocks under scrutiny

Trustees will have to describe how they take account of all risks, including ESG risks and with climate change getting a specific mention. Defined contribution schemes will have to say how they have implemented these strategies.

Schemes might reasonably expect a localised spike in engagement and pressure to act on risks like climate change. Campaigners plan to make members aware of these disclosures, and there is the potential for inert but environmentally conscious savers to suddenly realise that they, like most of us, are investors in fossil fuels.

Most importantly, the fact that this information will be available to members and the wider public should enable a level of scrutiny that has previously been hindered by meaningless disclosures.

In fact, it is sometimes said in the industry that the identity of a scheme’s investment consultant can be divined by reading its statement of investment principles, so generic and carbon-copied are their contents.

The previous state of affairs was opacity dressed up as transparency: these ‘disclosures’ told members and the public nothing of how the scheme had actually addressed what are – it is now almost universally accepted – material financial risks.

The same criticism could be made of the disclosure of defined benefit liabilities. The industry and investment analysts know that accounting deficits do not represent the true health of the scheme or the extent of future contributions the employer may have to make. So what purpose do they serve in company accounts?

Thankfully, pressure to change is also building here. Greater transparency will do the world of good to financial services, but it is imperative that these disclosures actually mean something to the end user, the members.

Angus Peters is an associate editor at Pensions Expert. You can follow him on Twitter @peters_angus and the team @pensions_expert.