On 18th June, the Department for Work and Pensions launched its consultation for clarifying and strengthening trustees’ investment duties. Its proposed regulations are intended to reassure trustees that they can and should take account of financially material risks and members’ concerns on issues such as ESG.

Ritesh Bamania, Head of UK Institutional Clients and Solutions at Lombard Odier Investment Managers, explains why he welcomes the consultation and its efforts to put ESG risks higher up the agenda:“Total risk management has a number of different aspects. Discussing, documenting and taking action is critical, especially when the time horizon and ability to recover from losses is potentially reducing for many schemes. 

“We recognize and have sympathy with the governance challenges that trustees face in understanding and dealing with all such variations and their cost implications. The consultation itself says that even the definition of ESG is not clear. However, given the risk of missing out on positive returns (or even worse, experiencing negative returns), we believe that the considerations in the consultation need to be allowed for.

“We believe the sustainablility revolution will be the single most important risk and return driver in the future. Written regulation will help ensure topics such as this are higher up the trustee agenda. There are numerous data points on ESG risks available to trustees, and stating that the information is not available will not be a good enough response in the future. In this sense, we would have liked a stronger statement on ESG considerations as the risk of missing out on the sustainable revolution is high in our opinion. 

“Lombard Odier’s sustainability framework already takes into account a total risk approach. We look for sustainable financial models, sustainable business practices and sustainable business models in our strategies. This enables us to cover the spectrum of implications that can impact investments. We view ESG related matters as a strong risk mitigator in relation to business practices. 

“The DWP consultation is a great opportunity for trustees, consultants, fund managers and other advisers to collaborate and improve outcomes for members. We see it as a continuation of the ‘black box’ idea being discussed by the pensions industry, where people can come together and learn lessons from the past.” 

For professional investor use only.
This document is issued by Lombard Odier Asset Management (Europe) Limited, authorised and regulated by the Financial Conduct Authority (the “FCA”), and entered on the FCA register with registration number 515393.
Lombard Odier Investment Managers (“LOIM”) is a trade name.
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