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Fiduciary Duty: Schroders, Aviva, Alliance Trust back call for “statutory” clarity

Investor letter to government marshalled by UKSIF

A group of leading institutional investors in the UK, including senior figures at Schroder Investment Management, Alliance Trust and Aviva Investors, have backed a call by the UK Sustainable Investment and Finance Association (UKSIF) for “statutory clarity” on fiduciary duty.

They reckon last week’s opinion by the Law Commission did not go far enough on the question of whether UK pension funds should, by law, consider sustainability risks as part of their fiduciary duty and have written to the government urging it to amend the statute so that the schemes do consider those risks.

Last week, the Law Commission, the independent body which reviews the legal framework in England and Wales, said that under the existing law, UK pension funds were free to take sustainability – or ESG (environmental, social and governance) risks into account if they believed those risks to be financially relevant.

The Commission also said that for long-term oriented investors like pension funds, ESG risks that companies face could be seen as financially relevant.

“These (risks) may arise from a range of factors, including poor governance or environmental degradation.“Where poor business ethics raise questions about a company’s long-term sustainability, we would classify them as a financial factor relevant to risk,” wrote the Commission in its opinion, which follows a 2012 report on short-termism by economics Professor John Kay.

In a statement, UKSIF Chief Executive Simon Howard said the forum has written to Vince Cable, the Secretary of State for Business, and Steve Webb, the Pensions Minister, asking them to “consider statutory clarification to provide pension trustees with the greatest possible confidence to consider the full range of investment approaches.”

Asked what still needed to be clarified, UKSIF told Responsible Investor that the statute should be amended as follows: “Trustees should (rather than may) consider wider factors in investment, for example material ESG and ethical factors.”

UKSIF’s letter to Cable and Webb was signed by 10 of the association’s members representing £550bn (€692bn) in assets. As well as the fund firms, it was signed by ESG research firms EIRIS and Vigeo.

A spokesman for the UK Department for Business, Innovation and Skills confirmed receipt of UKSIF’s letter, but said the ministry would not officially comment on it – or on the Kay Review for that matter – until September. Link