Regulator Publishes Blog on Governance and Handling of Systemic Perils in Pension Management
Pension Regulator Emphasizes Proactive Risk Management in Trusteeship
The Pension Regulator, a UK-based organization responsible for overseeing work-based pension schemes, has published a blog highlighting the importance of managing systemic risk as a core aspect of effective trusteeship. The blog underscores the need for trustees to understand and manage financially material risks like climate change and nature loss, particularly in complex areas such as Environmental, Social, Governance (ESG) factors and private markets [1][4].
The Regulator is raising its expectations around investment governance, calling for trustees to incorporate investment governance that proactively manages systemic risks as a core element of their fiduciary responsibilities. Trustees must ensure that investment decisions are long-term, well-evidenced, resilient to climate and nature-related risks, and subject to appropriate challenge, not merely focused on short-term returns [1][4].
Specifically, trustees are expected to confidently assess whether their investment strategy is resilient to climate and nature-related systemic risks. They should obtain and use the right information to challenge advisers and asset managers effectively. Trustees are also urged to consider long-term risks across all investments, including complex areas like ESG and private markets [1][4].
To demonstrate leadership beyond mere compliance, trustees are encouraged to actively embed systemic risk considerations into governance processes. The Regulator recommends frameworks like the Taskforce on Nature-related Financial Disclosures (TNFD) and references global initiatives such as the UN Global Compact. These provide trustees with practical tools and principles to identify, assess, and report on nature-related and sustainability risks and opportunities, supporting prudent and responsible investment governance aligned with broader sustainable finance goals [1][4].
While the Regulator is moving towards a more hands-on and expert-driven dialogue with pension schemes to support this shift, trustees are encouraged to engage with consultations on mandatory transition plans and use international frameworks like TNFD for guidance. This ensures that their governance evolves with emerging systemic risks [4].
In summary, pension trustees should adopt a forward-looking, evidence-based, and leadership-driven approach to investment governance that integrates ESG and private market risks to manage systemic financial risks effectively. They should leverage recommended resources such as TNFD and the UN Global Compact for comprehensive risk management and disclosure.
References: [1] The Pension Regulator. (2022). Blog: Managing systemic risk as a core part of effective trusteeship. Retrieved from https://www.thepensionsregulator.gov.uk/blog/managing-systemic-risk-as-a-core-part-of-effective-trusteeship [2] The Pension Regulator. (2022). Trustee Toolkit. Retrieved from https://www.thepensionsregulator.gov.uk/trustees/trustee-toolkit [3] The Pension Regulator. (2021). ESG guidance consolidated. Retrieved from https://www.thepensionsregulator.gov.uk/news/esg-guidance-consolidated [4] The Pension Regulator. (2022). Joining the UN Global Compact. Retrieved from https://www.thepensionsregulator.gov.uk/news/joining-the-un-global-compact
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