UK-based campaign group ShareAction has drafted responsible investment legislation that “raises the ambition of what is expected of fiduciary investors as key actors in the economy and society”.

At the heart of the bill, which the campaign group is proposing to UK lawmakers at an event today, is an expansion of the concept of beneficiaries’ best interests to include environmental and social considerations.

“Despite recent welcome changes to the law, there is still a live debate about the nature of fiduciary investors’ duties: what does it mean to act in the ‘best interests’ of beneficiaries?,” said ShareAction.

Notably, the bill is explicit that to fulfil their duties to act in beneficiaries’ best interests, fiduciary investors would have to have regard to the impact their investment decision-making had on society and the environment, as opposed to just the likely consequences of environmental and social (and corporate governance) factors on the financial value of portfolios.

This is the so-called “double materiality” concept.

In connection with this, the model legislation requires the government to establish a “UK Council for Investor Due Diligence”, modelled in part on arrangements in Sweden and Norway.

According to ShareAction, such a council would be necessary because it is “a huge ask to expect investors to analyse the social and environmental impacts of their investment decisions”.

The council would be tasked with undertaking due diligence into company activities and issuing alerts and recommendations to fiduciary investors where companies were liable for adverse human rights impacts or environmental damage.

ShareAction’s proposal also includes provisions requiring fiduciary investors to understand their beneficiaries’ views and that any default pension funds and any funds marked as sustainable align with the Paris Agreement goal of limiting climate change to below 2°C.

It also provides enforcement powers through judicial redress for beneficiaries.

‘Core principles retained’

As much as the proposed legislation is about a vision for change, in a report ShareAction also said it was “important to note what the bill does not try to change”.

“The bill retains the core legal principles of prudence, loyalty to beneficiaries, and impartiality between them,” the campaign group said. “It fully respects the fact that the purpose of a pension, and savings, is to make money.

“It does not allow governments to meddle for political ends in how pensions are invested. And it retains fiduciary investors’ discretion to make the decisions they believe are in the best interests of beneficiaries.”

“The process undertaken by the Council would also strengthen the case for human rights and environmental due diligence by companies themselves”

And with regard to the proposed council investor due diligence, the campaign group said “it is important to note that there is no suggestion that investors are responsible for remedying the damage done by companies, but they can use their considerable leverage to steward companies, to highlight damage, and, ultimately, they may divest”.

“The process undertaken by the Council would also strengthen the case for human rights and environmental due diligence by companies themselves and the influence of large investors would no doubt be a powerful driver for preventing abuses in companies’ operations and supply chains.”

ShareAction is planning to work with MPs of all parties and with other civil society groups to build widespread backing for the introduction of legislation resembling its bill before the end of the current parliament.

Catherine Howarth, chief executive officer of ShareAction, said: “This bill will make powerful institutional investors accountable and transparent about the decisions they make on behalf of so many of us. We commend it to every MP and look forward to engaging with the government on the big ideas it contains.”

Sir Ed Davey, chair of the All-Party Parliamentary Group on Sustainable Finance and leader of the Liberal Democrats, is backing the bill.

“Government and regulatory action are needed to help us achieve our international climate commitments and to place the financial services sector on a more sustainable footing,” he said. “This bill represents a clear pathway to achieving that aim and I look forward to supporting it over the coming months and years.”

The report about the bill can be found here.

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