Investors worth £550bn urge government for legal clarity on fiduciary duty

Investors with over £550 billion in assets under management have called on the government to consider legal clarification when it comes to stewardship issues. This follows on from the Law Commission confirming that trustees could consider a wide range of sustainability issues when making investment decisions.

Last week, the Law Commission published its final report on fiduciary duty after a consultation period. It concluded that the law did allow environmental, social and governance (ESG) factors to be taken into account, although it acknowledged that the current rules are “confusing and inaccessible”.

The report also noted that sustainable investment and the incorporation of ESG issues into the investment process can reduce risk, particularly in the long-term. It highlighted a range of practices, such as poor treatment of employees and environmental degradation, as being financially material risks to investors.

The UK Sustainable Investment and Finance Association (UKSIF) has now co-ordinated a letter signed by investors urging the government to take up the commission’s recommendations on ESG and stewardship issues. The letter, which has been sent to business secretary Vince Cable, also asks the government to consider statutory clarification.

Signatories of the letter include Alliance Trust, Schroder Investment Management, Impax Asset Management, Aviva Investors and WHEB Group.

The signatories state that as “responsible and long-term investors” they believe that creating an environment that facilitates ESG issues is important. In particular they support the recommendations that trustees should be required to state their policy on stewardship and that the Pensions Regulator and Financial Conduct Authority should provide rapid, accessible guidance in the area.

Simon Howard, UKSIF chief executive, said, “We live in a world where issues such as climate change, resource depletion and human rights practices are coming under increasing scrutiny.

“It is therefore essential that the government gives absolute certainty to pension trustees that they can and should consider the full range of sustainable investment approaches necessary for the type of long-term decision-making that grows the value of beneficiaries’ assets.”

Recent research has found that pension savers also support long-term investment strategies and the incorporation of ethics. Almost half of respondents to a National Association of Pension Funds (NAPF) survey said they would accept lower returns if their pension provider avoided companies with unethical practices.

Howard added, “We believe that statuary clarification of some aspects of the law in line with the Law Commission’s views is still the most effective way to protect the public’s pensions and savings, and is a much stronger statement of the government’s commitment to long term investment.

“We therefore call upon Vince Cable and Steve Webb to consider statutory clarification to provide pension trustees with the greatest possible confidence the full range of investment approaches.”

Photo: danist07 via Freeimages

Further reading:

Investment trustees should consider ESG factors, concludes Law Commission

Fiduciary law ‘fit for purpose’ but investor knowledge needs to improve

Fiduciary duty: are your investments fit for the future?

Law Commission’s consultation on fiduciary duty closes

ShareAction calls for laws to encourage sustainable investment