What’s the context?

On 10 January 2024, the Pensions Regulator (TPR) published its long-awaited new code of practice and consultation response. Previously known as the “single code” and first announced in 2019, there was a consultation on a draft version of the General Code in early 2021, with an interim response from TPR following later that year.

The General Code came into force in March 2024. It brings together 10 of TPR’s 16 previous codes of practice into new “modules” which are intended to be clearer and more accessible. For the most part, the standards it sets out are not new.

The General Code sets out expectations for trustees to maintain an effective system of governance (ESOG), including robust risk management and oversight processes.

ESG factors are integral to this framework, requiring trustees to consider environmental, social and governance risks as part of their fiduciary duties and investment strategies.

What are my compliance obligations?

ESOG

In 2019, the Occupational Pension Schemes (Governance) (Amendment) Regulations implemented parts of the second European Pensions Directive (better known as IORP II). This introduced the requirement for trustees to establish and operate an ESOG, which must be proportionate to the size, nature, scale and complexity of the scheme. The General Code explains that an ESOG should include consideration of ESG matters relating to scheme investments.

Climate

The General Code acknowledges that “all pension schemes face some degree of material risk from climate change”. An ESOG is expected to ensure that consideration of environmental factors is part of a scheme’s investment decision-making. The General Code states that trustees should:

  • talk to their advisers and asset managers about how short- and long-term climate change risks and opportunities are built into their recommendations, and
  • understand what measures are being taken to reflect climate change risk within investment portfolios.

Trustees must also establish and operate adequate internal controls for their scheme. As part of this they should assess the risks and opportunities associated with climate change in their risk assessment.

These requirements dovetail with those of the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021 (the Climate Change Governance Regulations) – for schemes with assets over £1bn and DC master trusts.

The General Code sets out that trustees of all schemes should:

  • consider the possible short-, medium- and long-term effects of climate change on the scheme’s objectives and its operations
  • maintain and document processes for identifying and assessing climate-related risks and opportunities
  • integrate these processes into their risk management and governance arrangements, and
  • oversee, assess and manage climate-related risks and opportunities linked to the scheme.

  • For full details on climate reporting obligations under the Climate Change Governance Regulations, see Climate disclosures

Stewardship

The General Code expects trustees to do the following in relation to stewardship:

  • identify their rights (including voting rights) attached to investments and consider their approach to voting and engagement on relevant matters, including on ESG
  • ensure they are familiar with their investment managers’ own stewardship policies
  • consider investment managers’ stewardship policies as selection criteria and seek to influence them as appropriate
  • monitor and regularly review investment managers’ stewardship practices
  • consider the potential long-term positive and negative impacts of investment decisions on member outcomes
  • consider following, where appropriate, the principles set out in the Financial Reporting Council’s UK Stewardship Code
  • seek to establish engagement approaches with investee companies and collaborative industry initiatives, whether directly or via investment managers, with a view to mitigating risks to long-term investment goals, and
  • consider co-operation with other institutional investors in engaging with investee companies, for example on ESG issues.

  • For details on how trustees approach stewardship in practice, see Voting and engagement – the trustee role