An investor group that represents £550 billion (€695 billion) of assets has called on the UK to enshrine in law the principle that pension scheme trustees can and should consider environmental, social and governance (ESG) factors in their investment decisions.
The UK Sustainable Investment and Finance Association is endorsing a report by the Law Commission which examines pension schemes’ approach to stewardship, including ESG policies.
“We were delighted with the Law Commission’s views that environmental, social and governance factors should be taken into account where financially material,” says Simon Howard, chief executive of the association, who adds that he wants “statutory clarification” that trustees should consider ESG factors.
UK law is currently unclear about whether ESG factors are relevant to pension schemes, with some trustees interpreting the law to mean they should concentrate exclusively on investment returns.
Yet there is a growing call from consultants, campaigners and some asset managers that pension schemes have a duty to invest in a responsible manner so as to tackle climate change, human rights abuses and other social ills.
“Trustees may take account of any financial factor which is relevant to the performance of an investment,” says the Law Commission report, called Investment duties of investment intermediaries. “These include risk to a company’s long-term sustainability such as environmental, social or governance factors.”
The UK Sustainable Investment and Finance Association has about 250 members, including asset managers such as Schroder Investment Management and Allianz Global Investors as well as pension schemes and banks.
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