The UK’s inaction on clarifying the fiduciary duties of pension trustees has come in for veiled criticism by the UN, in a report examining the country’s role as a global leader for green finance.
The report, by the UN Environment Programme (UNEP) and forming part of its work on the design of sustainable financial systems, also called for the development of larger-scale pension funds in the UK, as it believes only sufficiently large organisations can improve their sustainability performance.
Despite praising the UK’s “clear” leadership on green finance issues, the report seemingly criticises UK policymaking.
It recommends that the Pensions Regulator (TPR) expand on the current requirement for pension funds to report merely on the integration of environmental, social and governance (ESG) concerns into schemes’ investment principles.
It went on to suggest that TPR clarify that fiduciary duties require attention to sustainability factors “through amendment of the occupational pensions regulation”.
The recommendation comes months after the Department for Work & Pensions (DWP) decided against amending investment regulations to better reflect the fiduciary duties of trustees, a decision acknowledged by UNEP in its report.
The DWP’s inaction was criticised as “extremely disappointing” at the time.
It came after a review of fiduciary duties by the Law Commission suggesting trustees weigh up “financial” and “non-financial” factors – terminology preferred by the Commission in place of ESG – when reaching investment decisions.
Other recommendations by UNEP included greater disclosure of sustainability information in pension fund annual reports, giving beneficiaries better access to information.
It also said the Prudential Regulation Authority (PRA) should begin stress tests of the wider financial industry.
The Bank of England, of which the PRA is part, previously said it saw “merit” in expanding stress tests to the pensions sector.
UNEP also suggested the UK pension industry needed to increase the size of its schemes if it wished to have an impact on sustainability issues.
The report said improving sustainability was “not just a question of rules” but also required the development of pension funds “with the scale and capacity to deliver”.
The largest UK pension fund is the £49.5bn (€67.5bn) Universities Superannuation Scheme.