The UK will not clarify the fiduciary duties of pension trustees by amending the law, a decision that has been criticised as extremely disappointing by parts of the responsible investment community.
In February, the government asked whether it should amend investment regulations for private sector funds, following suggestions from the Law Commission.
The Commission said there was a case for changes to the regulation under which trustees have to explain in the Statement of Investment Principles whether environmental, social and governance (ESG) concerns were taken into consideration when making investment decisions.
Instead, it said new wording should clarify how trustees weigh up ‘financial’ and ‘non-financial’ factors – terminology preferred by the Commission in place of ‘ESG’ – when investing.
In its response to the consultation, the Department for Work & Pensions (DWP) said amending the regulations to offer distinctions between the two areas “would not necessarily lead to greater clarity for trustees”.
The DWP argued trustees were aware of their responsibility to consider such matters, citing surveys conducted by the Pensions and Lifetime Savings Association (PLSA).
The PLSA’s newly appointed stewardship and corporate governance policy lead, Luke Hildyard, cited the same survey when arguing that trustees were aware of their duties.
He backed the government’s decision not to amend the regulation, saying it “shares the view that more prescriptive regulation on fiduciary duty isn’t warranted at this time”.
However, ShareAction noted that in the same PLSA survey more than one-third of respondents said their trustee boards were unaware of the Law Commission’s report.
A review of equity markets led by John Kay, who recommended the launch of the Investor Forum, triggered the report, published in 2014.
ShareAction chief executive Catherine Howarth insisted that the government needed “robust” reasons to ignore the commission’s recommendations.
“Disagreement from respondents on the detail of changes to regulations falls well short of that standard,” she said.
“Why has the government ignored the chance to bring interested stakeholders together to think this through, and instead taken six months to produce an old-school consultation response rejecting change?”
The charity in 2014 drafted its own responsible investment bill, seeking to incorporate some of the Kay Review’s proposals into law.
UKSIF, the responsible investment association, also voiced its displeasure.
Its chief executive Simon Howard said he was “extremely disappointed”.
“This represented a key opportunity to help put UK finance on a more sustainable footing, and it has been missed,” he said.
UKSIF noted that the DWP’s decision to issue only guidance seemed at odds with the view of the Department for Business, Innovation and Skills (BIS), which said in 2014 it would ensure trustees were “empowered”.
Howard argued that trustees trying to do the “right thing” despite the current regulatory background deserved “explicit” regulatory support from government that would see those lagging behind required to protect member interests.
“The government says guidance from regulators is enough – that is wrong,” he added.
“The world’s governments are gathering in Paris to try to address climate change. If the threat is important enough for that, it’s important enough to change some regulations.”