Disclosure and the ESG spotlight – will you be blinded by it?
For a trustee of a pension scheme, good communication with your members is increasingly important to get right. You need to consider how to communicate – the method and the language. But even more fundamentally, you need to consider what to communicate – the substance.
And before you decide what substance you would like to communicate, you need to be aware of what you are required to communicate – or disclose.
The usual starting point is what are generally known as the Disclosure Regulations. They tell you what you need to provide to members, both automatically and upon request. The former consists largely of what is described as “basic scheme information”. The latter includes the ‘trust deed and rules’, the scheme’s annual report, and the latest statement of investment principles.
In addition, there is case law that provides some guidance as to a beneficiary’s entitlement to documentation held by trustees. Although there is some debate as to what exactly it requires, in practice trustees should consider all the circumstances of the request and balance any competing factors for and against disclosure, particularly when there are issues as to personal or commercial confidentiality.
And finally, there are specific rules that apply regarding the disclosure of relevant documentation in the context of a member complaint to the Pensions Ombudsman, or court proceedings.
The case law was tested in a climate change context through a complaint by a member (known as “Mr D”, supported by ClientEarth) to the Pensions Ombudsman that was decided in August 2019.
Mr D requested, and was provided with, a copy of the scheme’s latest actuarial valuation, its statement of investment principles, and its responsible ownership policy. The trustee also offered to, and did, meet with Mr D to discuss his concerns around climate change and the threat that it posed.
But Mr D was not satisfied and also requested additional documentation, including minutes of trustee meetings. This request was refused, citing a number of factors including confidentiality and commercial sensitivity of the information, the relevance of the additional documents to Mr D’s personal benefits, resourcing requirements, proportionality and potential conflicts of interest.
Mr D argued that the trustee’s refusal to provide requested information relating to climate change risks amounted to maladministration. However, the Ombudsman held that there was no breach of a positive disclosure duty, either under case law or legislation, nor was there maladministration in declining the member’s requests.
But this is not the end of the matter, as there are increasing obligations on trustees both in relation to climate change generally, and also as to the information members are entitled to.
We have seen this in the context of statements of investment principles and now also in relation to implementation statements in schemes’ annual report and accounts.
And once the Pension Schemes Bill 2019 -2021 becomes law, regulations will be able to impose requirements on trustees to secure effective governance of their schemes with respect to the effects of climate change, and to publish information relating to the effects of climate change on the scheme.
Such increased obligations increase the risk of non-compliance or, at least, alleged non-compliance. And this may give a basis for obtaining the disclosure of information through the back door of any legal proceedings where non-compliance is alleged. We saw this recently in the context of climate change with the Australian case of McVeigh where a confidential settlement was reached in November 2020.
But compliance will not only be ‘policed’ by members. Additional provisions in the Bill will, once they commence, also enable the Pensions Regulator to enforce compliance through a variety of methods, including the imposition of financial penalties. And it has an array of investigative tools that can compel disclosure of information that are not available to members. These include the ability to require the disclosure of any documents relevant to the possible exercise of its functions, as well as the ability to compel attendance at an interview and inspect premises. Appropriate reliance on legal professional privilege may be an important consideration for trustees in such circumstances.
This is not intended to be scare-mongering. Rather, it is to put the Ombudsman case in its (perhaps soon to be largely historical) context and to urge you to be prepared for greater scrutiny of your actions in relation to matters involving climate change.