UK’s Fiduciary Duty review likely to major on guidance for pension trustees

Eagerly anticipated final report due next week

An eagerly anticipated report from the Law Commission on fiduciary duty – one of the key proposals to come out of the Kay Review – is likely to feature guidance for pension trustees but stop short of recommending a change in legislation, RI has learnt.

The review is being undertaken by the Commission, which reviews the law in England and Wales, as part of a response to the government-sponsored review of equity markets led by Professor John Kay, the economist. Its final report is expected to be released next Tuesday (July 1).

Tamara Goriely, team manager of the commercial and common team at the Law Commission, has hinted that its final guidance will provide more clarity than was evident in its initial findings that were published at the end of last year. One of the complaints about the Commission’s initial report released at the end of last year was that it lacked a “clear succinct statement” on trustee discretion to integrate ESG.

She told Responsible Investor that there had not been a lot of appetite for legislation. “The main part of the report will be guidance to pension trustees,” she said, “rather than a change in the law.”

Goriely added that the Law Commission recognises that there were concerns about the way arguments were expressed and structured in that draft. She added the government would have six months to respond to the final recommendations.

Simon Howard, CEO of UKSIF, the UK Sustainable Investment and Finance Association, suggested that there is not much political appetite for tackling the issue.Speaking this week at the launch of the Cambridge Handbook of Institutional Investment and Fiduciary Duty, Howard said that the final report would go to Secretary of State for Business Vince Cable and Steve Webb, a junior minister under Secretary of State for Work and Pensions Iain Duncan Smith.

“It shows that Mr. Duncan Smith is less engaged with this agenda than we would like,” he said. “And it leaves a question in our mind as to political will.”

Howard also noted the delay in government implementing past Law Commission recommendations.

“If you look at stats on the Law Commission website, it says that two-thirds of its recommendations have been accepted by government. At first sight this is good news. But if you look deeper, in 2009 one recommendation was categorised as “accepted but will not be implemented”, whilst of the three reports produced in 2010 one was rejected and two are pending. So the sector needs to be ready to push for implementation since it is not certain.”

Howard said that the Law Commission had been very discreet about its final recommendations but that UKSIF has been encouraged by it during the process: “We think ESG is an issue for them, even if it seems unlikely that there will be statutory clarification.”

He said if UKSIF was disappointed with the recommendations it would convene members with a view to drafting a public letter on behalf of the sector. He also said the organisation was also considering approaching MPs for a Parliamentary debate on the issue.

Catherine Howarth, chief executive at campaign group ShareAction, complained about inertia in the investment industry and said statutory clarification of fiduciary duties was necessary.