I was interested to see the recent call by the National Scotsman for pension funds (in particular Scottish LGPS funds) to invest in targeted Scottish businesses with a view to achieving Scottish economic self-sufficiency prior to independence (here).

This is part of the growing trend to ask trustees (or managers acting in a quasi-trustee role, in the case of LGPS administering authorities) to consider how their schemes’ investments might be better used for (for want of a better term) the betterment of society.

Of course, the trustees’ basic fiduciary duty was (until recently) to act in the interests (sometimes referred to as the ‘best interests’) of their scheme members. This was usually interpreted to be ‘the best financial interests’ – famously underlined by the Courts when rejecting Arthur Scargill’s action to prevent (in essence) the Miners’ Pension Fund from investing in industries that competed with the UK coal industry. More recently the Courts have indicated that the primary duty is to promote the proper purposes of the scheme, but the financial interests remain high on the agenda.

Over the years, trustees (as part of the general investment community, if not always specifically) have been asked to consider whether it is appropriate to invest in, for example, companies allegedly involved in child or slave labour.

At one point we would have come across vigorous arguments that if these investments produced the best returns, then it was not the trustees’ job to look any further. I can’t imagine that anyone would (publically) defend such a position now.

In a similar vein, it would probably be unusual for an investment manager to shout from the rooftop his preference for investments in, for example, countries with poor human rights records or countries with autocratic regimes.

The alcohol industry may be the next to fall into that category. Will the soft drinks and junk food industry follow?

If you were to say that there is a significant difference between avoiding investing in certain industries and targeting investments in others, I would agree (up to a point).

Let’s consider the fossil fuel industry and the renewable energy sector. One might argue that it’s a small step to move from opposing fossil fuel investment to targeting renewable energy. Although arguably both involve a ‘political’ decision, many would argue that there is a more fundamental consideration at stake here – the survival of the planet.

But when does an issue move from being a point of view to an accepted situation that must be tackled? When do we ignore the voices of the few (or the loudest in some cases) who oppose such a move? Should trustees wait until a court case tells them that saving the planet is in the interests of scheme members?

Some consider that we don’t have the time to wait for the development of case law – that climate change must be dealt with by every available means, now. They might take some comfort (maybe a little) from legislative nudges – for example the climate change risk requirements under the Pension Schemes Act 2021 and the draft Climate Change Governance Reporting Regulations appear to be a step in the right direction.

Others argue that now is the time for trustees to step up to the plate and be the drivers forcing through essential change – that this is part of their fiduciary duty to their members.

Whether or not you and I see Scottish independence as a good thing, I think we would all agree that trustees are going to face ever-more pressure to make difficult (vital?) decisions – whether we label those as ethical, moral, social, or political – and to take an ever more active role in those decisions.