Abstract
The extent to which pension funds and other fiduciary investors can take account of environmental and social issues when making investment decisions has long been subject to debate. This chapter examines some of the key legal arguments and argues that fiduciary investors’ scope for action on such issues is considerably wider than is often supposed. Although the primary focus is on the UK legal context, similar issues arise in various other jurisdictions. In 2013, the UK Law Commission was asked to review this area of law and make recommendations to policymakers with a view to addressing uncertainties among market participants. The chapter makes reference to the Law Commission’s provisional findings where appropriate, but at the time of writing, its final report had not yet been published.
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Notes
- 1.
The question of how far fiduciary duties apply to those acting on behalf of trustees, such as asset managers and consultants, is complex and is beyond the scope of this chapter. For a consideration of these issues, see UNEP-FI (A legal framework for the integration of environmental, social and governance issues into institutional investment. UNEP-FI, 2005), FairPensions (Protecting our best interests: Rediscovering fiduciary obligation. London: FairPensions, 2011) and Law Commission (Fiduciary duties of investment intermediaries: A consultation’ (Consultation Paper No. 215). London: Law Commission, 2013)
- 2.
See also FairPensions (2011) for a discussion of whether trustees are or should be permitted to take into account the ‘underlying purpose’ of the trust (i.e. to provide beneficiaries with a secure and prosperous retirement) rather than only the immediate purpose (i.e. to provide the largest possible pension pot as a means to that end).
- 3.
This is clearly more straightforward in a defined contribution (DC) pension scheme, where beneficiaries make their own choice of funds. However, the tie-break principle provides a framework for making ethical decisions in a defined benefit (DB) scheme, where all beneficiaries’ assets are invested together.
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The author is former Head of Policy and Research at ShareAction (formerly known as FairPensions) and authored the papers cited as ShareAction publications in that capacity. However, this paper is written in a personal capacity.
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Berry, C. (2015). Fiduciary Duty and Responsible Investment: An Overview. In: Wendt, K. (eds) Responsible Investment Banking. CSR, Sustainability, Ethics & Governance. Springer, Cham. https://doi.org/10.1007/978-3-319-10311-2_35
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