Not every pension fund trustee will make it through the 255 pages of the Law Commission’s report on the fiduciary duties of investment intermediaries, but they’ll all be affected by its findings, says ShareAction’s David Clarke

With the Law Commission’s unambiguous confirmation of the legal position, there can no longer be any doubt that consideration of ESG issues is consistent with trustees’ legal duties.  And the report opens the door for non-financial factors such as members’ ethical views to be taken into account, with significant implications for stocks like tobacco and arms.

Trustees are likely to find that members, armed with the commission’s assurance over pension funds’ freedom to reflect member views, will expect their concerns to be listened to.

During its consultation, The Law Commission heard from pension savers who were angry that their funds had cited a legal duty to maximise returns as a reason not to listen to them. Universities Superannuation Scheme member Susan Blackwell said, “I cannot tell you how frustrated USS members like myself are at the scheme’s failure to address our ethical concerns”.

Schemes like USS will find it increasingly difficult to use the law as a reason to dismiss the views of their beneficiaries.

The Law Commission has considered the ways in which funds might assess what issues their members care about. In some cases trustees can conclude that a consensus exists among their members by carrying out surveys. Others, such as a pension fund set up by a religious group or other charity, can assume that their members share a particular viewpoint because of the values of the members’ employer.

Trustees can be in no doubt that there is appetite among savers for a responsible investment approach. A recent survey of UK pension scheme members by the National Association of Pension Funds found that a large percentage of respondents wanted their provider to invest in companies which avoid unethical practices.

The survey also found that many savers would be interested in receiving general information about where their savings are invested, but that nearly 40% were not aware of what their fund is doing with their money.

ShareAction is calling for a more accountable investment system, with the extension of savers’ rights to scrutinise decisions made on their behalf. This includes being reported to about the management of risks to their fund, the right to ask questions at an AGM and the right to nominate a member representative to sit on their fund’s board.

This is an opportunity to be seized by trustees, who will find that greater transparency and accountability can engage and enthuse members about the saving process. By confirming that beneficiaries can be listened to, the Law Commission has helped to lay a crucial foundation on which this vision can develop.

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