Fresh legislation is needed to push pension trustees and asset managers to consider ESG factors within their legal duty to beneficiaries, as well as ensuring trustees are up to standard, ShareAction had said.
The responsible investment-focused charity will today (5 November) propose a ‘responsible investment bill’ to MPs at an event held in collaboration with the All-Party Parliamentary Group (APPG) on Sustainable Finance.
The proposed bill would strengthen the legal duties of fiduciary investors to act in the best interests of members by mandating that ESG is fully considered. If enacted, funds – including default funds – would need to align with the Paris Agreement goal to limit climate change to below 2°C.
Liberal Democrats leader and APPG chairman Sir Ed Davey said the bill would be “a clear pathway” to ensuring the UK reached its international climate commitments.
ShareAction recommended that the Financial Conduct Authority and The Pensions Regulator should be tasked with supervising compliance of the bill’s terms, mirroring similar moves taken by governments in Switzerland and the Netherlands this year.
The proposed bill also calls for the creation of a UK Council for Investor Due Diligence to research company practices and issue alerts and recommendations to investors. A risk mitigation response would then be required from pension schemes and asset managers within 60 days to “avoid complicity in serious violations of human rights or environmental crimes by investee companies”.
Existing arrangements for major institutional investors in Sweden and Norway are the model the UK’s council could follow, ShareAction said.
Provisions to improve transparency and accountability of pension trustees to savers would also be central in the bill, alongside a deeper focus on enforcement.
ShareAction said “one of the weaknesses of the directors’ duties” introduced under section 172 of the Companies Act 2006 is “the lack of enforcement powers where directors have fallen below a reasonable standard”.
As such, it added the proposed bill would provide enforcement powers through judicial redress for beneficiaries.
Chief executive Catherine Howarth sad: “We can and must ensure that the UK’s mighty investment industry does more to meet the long-term needs of ordinary savers, while avoiding investment decisions that cause grave environmental harm or violate human rights.
“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.”
Following today’s launch, ShareAction will work with the APPG to push for the introduction of its proposed bill before the end of the current parliament.