Written by Kate Granville Smith

The fiduciary duties of pension trustees is a subject which is is engaging many trustees and advisers of pension schemes at the moment. As we reported, last month the Financial Markets Law Committee issued a useful paper on this topic. 

 

 

ESG and pensions: Fiduciary duties of trustees considered by Financial Markets Law Committee, Kate Granville Smith (burges-salmon.com)

In further developments, The Rt Hon Sir Stephen Timms MP has written in his capacity as Chair of the WPC to Paul Maynard, Pensions Minister. 

committees.parliament.uk/publications/44325/documents/220225/default/

The letter dated 17 April explains that the WPC has received evidence regarding ways to clarify fiduciary duties in relation to climate change. It noted that there is a wide divergence in the way trustees were interpreting their duties in this area and that pension funds continued to invest in high emitting sectors despite the financial risks of climate change. Referring to the FMLC paper, it was noted that the paper helped highlight that there was a strong case for trustees considering climate change and other sustainability factors as ‘financial factors' in investment decision-making. 

In terms of how to help trustees, the letter notes that WPC heard it would be helpful for The Pensions Regulator to issue guidance but some thought that the Government needed to go further and change the law. 

The letter also touched on economic models on the impact of temperature rises used by some investment consultants as some felt that they did not reflect the findings of climate scientists.

The letter poses 5 questions:

  1. What are the plans for your proposed roundtables on fiduciary duties?
  2. Will these look at how best to mainstream the principles set out by the FMLC?
  3. How do the duties of insurers (in considering the climate change risks and impacts of their investments) differ from those applying to pension scheme trustees?
  4. As part of your planned work on improving trusteeship, do you plan to look specifically at how to build the capabilities and capacities trustees need to be effective in taking account of climate change risks in investment decision-making?
  5. Given that legislation to bring investment consultants into the FCA's regulatory perimeter has not been brought forward, it would be helpful if you could explain how DWP and TPR are working with the FCA to ensure that they use appropriate models of the impact of climate change.

The letter asks for a response to these questions by 1 May and we await further developments with interest.