The Department for Work and Pensions has opened a consultation into the consideration of social factors in ESG by occupational pension schemes. Guy Opperman noted that whilst the environmental and governance aspects of ESG are relatively well understood and accordingly substantively addressed by pension schemes, the ‘S’ is distinctly lacking in meaningful engagement, with many trustees unsure of what effective social governance entails in practice. Following an initial approach collecting information from 40 of the largest schemes on their ESG policies, the DWP is now launching a Call for Evidence to seek trustee views on their approach to social factors. Whilst this remains an “information gathering exercise” at this stage, it may well galvanise policy changes that would provide welcome clarity for trustees.

What are S factors?

Social factors are wide-ranging and can include a variety of aspects such as supply chain considerations (e.g. modern slavery safeguarding and working conditions of suppliers – such as in the recent Boohoo example), company selling practices (e.g. consumer protection, customer privacy and data security) and a company’s impact on its community (e.g. impact on local businesses and use of local workforces). Significant facets of social factors also tie in closely with investment, such as selecting investment based on moral, religious or value-based criteria, or investing into funds whose managers provide satisfactory information regarding their approach to stewardship and ESG factors. Social factors vary from scheme to scheme and may also include considerations such as gender diversity or the supply of controversial weapons.

Why is lack of S an issue?

In recent years there has been a seismic shift in recognising the importance of the environmental factor of ESG. For example, the new Pension Schemes Act 2021 lays the foundations for trustees to report on climate risk-related governance in relation to their schemes. Similarly the ‘G’ aspect of ESG is well established, with the UK Corporate Governance Code regularly updated since the 1992 Cadbury Report first drew attention to corporate governance failures in UK companies. However the ‘S’ element remains unrefined and misunderstood in practice.  

Consequently, Guy Opperman called stated that many trustees’ policies in relation to social factors are “high level and unilluminating”. It appears that trustees are unsure what constitutes a social factor in practice or how they relates to pension schemes, leading to generic, vague policies that offer little guidance to those tasked with implementing them.

Why do pension trustees find it hard to consider S factors?

One of the reasons why trustees may find it difficult to incorporate social factors into their schemes is because these may appear to be more immediately applicable to investment in tangible assets such as products and commodities. Another reason is that social factors by their nature are difficult to separate from environmental and governance aspects, which makes it harder for trustees to delineate exactly which parts of an investment return can be attributed to the trustees having considered a social factor such as data protection.


Trustees ultimately owe a fiduciary duty to act in their members’ best financial interests. Investing in assets with good ESG credentials will theoretically provide investment that is more resilient to negative press revelations based on e.g. poor working conditions, which in turn leads to a drop in share prices. Although it may be challenging for trustees to consider social factors in isolation, it may be useful for trustees to consider social factors through the lens of how these affect economic factors, as seen in the example above. Regardless of how trustees currently review social factors applicable to their schemes, the results of this Call for Evidence will be interesting to see and will hopefully lead to further policy guidance being issued.

By Hannah Jeckel and Susannah Young