Responsible investment charity ShareAction has called on the next UK government to amend the law to give trustees greater scope to act on sustainability impacts.

In its latest report – Responsible investment for a better future – the group has set out guidelines including a proposal for policymakers to amend the law to include a clarified and expanded definition of savers and beneficiaries’ ‘best interests’, adding that fiduciary duty should be reformed to drive a more responsible pensions sector.

According to ShareAction, this approach would retain trustees’ core duties, while giving greater freedom to fulfil their existing duties to consider sustainability-related financial risks and opportunities more comprehensively. This change would encourage trustees to act on sustainability impacts that are likely to have systemic financial implications in the long term.

“The UK is the largest pensions market in Europe. UK pension funds hold over £3trn in assets under management but much of this money is invested in damaging activities such as fossil fuels and deforestation. Pension funds could instead be a source of capital for clean energy and green technology and become a significant driver of green growth,” the report stated.

ShareAction said it believes the law still understands the purpose of pension investments to be solely financial, ignoring the relationship between the financial system and the wider world, stressing that this framework is no longer suitable for the challenges that investors and policymakers now face in dealing with existential challenges such as climate change and the biodiversity crisis.

The report comes after the Financial Markets Law Committee (FMLC) recently published its report on fiduciary duty, where it concluded that sustainability factors can, and should, be considered under fiduciary duty.

ShareAction went on to call for an explicit redefinition of ‘best interests’ in law to reflect the non-financial determinants of pension savers’ welfare.

It added that the government must therefore reform legislation to clearly define this responsibility in the letter of the law and ensure that trustees take real action to address sustainability risks and opportunities.

Responsible investment

According to the charity, the stakes cannot be higher, adding that the 2024 General Election will take place amid unprecedented sustainability crises.

The report also stressed that 2023 was earth’s hottest year in 174 years of climate data recording, while biodiversity is in rapid decline globally, with the UK being one of the most nature-depleted countries in the world.

“Meanwhile, inequality is increasing and the cost of living, particularly for low-income households, has risen sharply due to increased prices for consumer essentials such as energy and food. This year’s election provides the next government an opportunity to demonstrate that the UK remains a global leader in tackling the enormous environmental and economic challenges we face,” the report noted.

Looking for IPE’s latest magazine? Read the digital edition here