The UK Sustainable Investment and Finance Association (UKSIF) has urged the Law Commission to clarify fiduciary duty in order to promote long-term sustainable investment.
The comments come after the Law Commission’s consultation on the fiduciary duties of investment intermediaries, which closed yesterday, following the Kay review that called for longer-term thinking in the investment world. Part of what the commission is looking into is how far trustees should consider non-financial factors when making investment decisions.
Simon Howard, chief executive of UKSIF – the trade body for the sustainable investment industry – said, “UKSIF, in common with many in the investment community, believes that long-term investment approaches by pension funds, asset management, consultants and other intermediaries are vital to protect and grow the value of people’s savings and pensions.
“Unfortunately it is clear that in practice the current law on fiduciary duty leaves many pensions fund trustees – who are often heavily reliant on the sometimes cautious legal and investment advice that result from lack of clarity – confused when it comes to deciding how far they can consider for instance, environmental, social and governance (ESG) issues in their investment decisions.”
The organisation argued that failing to consider other issues, including ESG, can put profits at risk. As a result, it is calling for the Law Commission to clarify the “outdated law” and allow pension fund trustees to take long-term investment decisions that can have positive financial outcomes for current and future savers.
Pensions minister Steve Webb has previously commented that pension funds and investors that already see the long-term financial risks of issues like climate change have a “competitive advantage”. His comments highlight how considering risks in the future when taking investment decisions can lead to more security.
Howard added, “To develop the long-term investment approaches necessary for better capital markets and a more robust UK economy, the commission should recommended a statutory ‘tightening-up’ of fiduciary legislation.”
He continued that particular interest should be paid to emphasising the fact that trustees should consider ESG issues to protect long-term interests.
Catherine Howarth, chief executive of ShareAction, said, “The law should no longer be seen as a barrier to responsible behaviour on the part of institutional investors.”