Accounting for Sustainability (A4S) and the Employer Covenant Practitioners Association (ECPA) have produced a ‘Top Tips’ guide for trustees on embedding Environmental Social and Governance (ESG) into the employer covenant assessments process.
As the introduction states, assessing the strength of the employer covenant should be a part of an integrated approach to risk management of DB schemes.
The guide looks at the 'why' and 'how' to embed ESG- related considerations into the employer covenant process.
In particular it suggests an approach for trustees and their advisers of:
1. Define Identify the relevant time horizon
2. Scope Broaden your understanding of sponsor-related ESG risks and opportunities
3. Research Gather relevant data and information and engage your sponsor and peers
4. Assess Leverage expert advice to assess potential impact
5. Engage Undertake evidence-based discussions with the sponsor
6. Review Measure, monitor and reassess accordingly
The guide can be accessed here.
The guide provides DB trustees and sponsors with practical steps on how to consider the impact of ESG risks as well as potential opportunities when undertaking employer covenant assessments. The suggested practical approach also aims at being considerate and showing compatibility with the trustees’ fiduciary duty to act in the best interests of members.
We are happy to help trustees understand their legal obligations in relation to ESG issues. Please contact Kate Granville Smith with any queries.