Written by Kate Granville Smith, Harrison Packer and Francesco Andres


One of the main duties of any pension scheme trustee are their fiduciary duties, which includes a duty of care when investing.  But to what extent can trustees consider factors like sustainability and climate change whilst still complying with their fiduciary duties? 

We know this is a question lots of trustees are considering.  Helpfully, the Financial Markets Law Committee (FMLC) has released a short paper summarising the current legal position and some of the uncertainties, which is aimed directly at trustees and has been well-received by the industry.

This is a useful paper for trustees considering their investment strategy and looking to understand more about this topic.  You can access the paper here, which sheds some light on the current debate. We would be happy to discuss further in the context of particular schemes:

Paper-Pension-Fund-Trustees-and-Fiduciary-Duties-Decision-making-in-the-context-of-Sustainability-and-the-subject-of-Climate-Change-6-February-2024.pdf (fmlc.org)

Some of the report’s key points are:

  • There remains uncertainty around whether non-financial factors can be considered, although when properly understood, many factors that might be considered ‘non-financial’ are in fact financial and should be considered.  For example, climate change has tangible financial impacts that pension schemes should be considering.

  • Financial factors need to be considered at a number of levels: in respect of the specific asset being considered, the portfolio as a whole, and the economies relevant to the fund (wider economies are relevant to setting scheme investment strategies). 

  • Proper assessment of these financial factors means it can be appropriate for trustees to opt for a lower return option, if doing so reduces overall risk over the relevant time horizons for the fund.   It is important for trustees to focus not only on the numbers, but also on the narrative behind them, which can provide important context especially when it comes to ESG. This can include considering factors like litigation risk in relation to ESG, which is increasing (see our recent blog post on this: 'ESG litigation risks' for pension trustees: A spotlight on identifying and mitigating risks (burges-salmon.com))


  • Climate change risks are systemic and constantly evolving.  Diversification alone may not be sufficient to properly manage the threat they present to funds.

  • While much of a scheme’s approach in this area will be supported by specialist advisers, trustees remain the key decision-makers and should continue to develop their understanding to ensure they act in members’ best interests (though trustees do not need to be ‘experts’).


  • Trustees need to reach a careful decision when investing. There may be a range of appropriate decisions. The report sets out key points which may assist in decision making including considering what trustees require from their advisers and investment managers in order to do their job as trustees. Importantly, when making investment decisions, exercise of judgment is permissible, and indeed necessary. 

  • A key role for trustees is their understanding of members’ views.  It can be appropriate for trustees to seek to obtain members’ views on ESG issues, and to consider the employer’s views as well.


This report is a very helpful contribution to the ongoing debate around whether pension scheme trustees should have clearer guidance (or legislation) outlining how ESG factors are to be considered in decision-making.  The understanding and development of law in this area continues to be a hot topic, with the Work and Pensions Committee recently holding a session exploring trustees’ fiduciary duties in relation to pension investment decisions, and there is likely to be more on this subject in the coming months from industry and Government.

Burges Salmon are well placed to advise on all aspects of ESG in relation to pension schemes.  If you would like to explore this topic further, please contact Kate Granville Smith.