Dutch corporate governance forum Eumedion, which represents 69 institutional investors with a combined €1trn in assets, has entered the debate around fiduciary duty that has been spurred by a legal review in the UK.
Eumedion wants the Law Commission, whose review of fiduciary duty ends today (January 22), to take a “stronger position” on allowing pension trustees to take account of environmental, social and governance (ESG) factors in their investment decision-making.
The body, which represents not only Dutch institutional investors but also non-domestic entities such as the UK’s Local Authority Pension Fund Forum, Hermes and USS as well as leading asset managers such as BlackRock, Capital Group and Allianz, points out that the Commission’s consultation document asserts that trustees may take ESG factors into account, but are not required to do so.
“Eumedion recommends the Law Commission to take a stronger position,” the body says, adding there is increased evidence that taking account of ESG factors can reduce risks and can lead to better returns in the long run. “Also, a more holistic view, including ESG factors, could help to solve the problem of ‘short-termism’ in the financial markets, addressed in the Kay Review.”
Eumedion also notes how the review, while intended solely for the UK, is “highly relevant” for other markets. It says in its submission that foreign market participantsand policymakers “could greatly benefit from the intellectually profound analyses conducted by the Law Commission.”
The Hague-based group contends that ESG aspects are relevant and material across all asset classes. It would welcome requiring trustees to consider companies’ ESG performance and report annually on how they have taken these factors into account, along the lines of a new provision in the Dutch Pension Act, which entered into force just over a year ago. This requires pension funds to disclose how ESG factors are taken into account in their investment policies.
Eumedion also sees an urgent need for pension funds to commit resources to act as engaged owners, saying: “More of them should work directly with investee companies to build long-term relationships, preferably collaboratively.”
Last month, Eumedion called for an independent body to monitor the new EU industry code for proxy voting agencies that is being developed. The proposed body would monitor the effectiveness of a new set of principles that the industry has drafted at the request of the European Securities and Markets Authority (ESMA).
See also: The one thing I’d most like to change about the UK Law Commission’s approach to fiduciary duty by EIRIS’s Peter Webster, the latest in our series looking at fiduciary duty.