Responsible Investor heard me speak at a Good Money Week Event hosted by Standard Life Investments and asked me to sum up what I said about some of our future activity.
The topics all come under the “fiduciary duty” umbrella. Regular RI readers will remember that the Law Commission said in 2014 that pension fund trustees “should” consider all financially material factors, and that clearly encompasses some significant ESG issues. UKSIF has been plugging away at this.
The Government declined to legislate on the matter, but then, after a consultation in the summer, The Pensions Regulator (TPR) issued important guidance for the trustees of defined contribution (DC) schemes essentially endorsing the Law Commission’s view.
This was followed a few weeks later by guidance from the Government for local government schemes which also endorsed the Law Commission’s view. This is very important because the LGPS is not trust-based in the way most defined benefit (DB) schemes are.
The Government has therefore taken on board an interpretation which they could have avoided had they been opposed to it. This makes us suspect that the Law Commission thinking has become the de facto standard for fiduciary duty and is likely to be the one used by other regulatory and quasi-regulatory entities.
The work we plan in the immediate future is to cement that gain. There are three separate areas:
The first is DB pension schemes. The guidance from TPR so far has covered DC. Since I think everyone wants joined-up thinking in pensions wherever possible we will be urging TPR to apply the same thinking in the much larger DB segment.
We are reasonably optimistic. (I am also happy to say that the CEO of TPR, Lesley Titcomb, has agreed to give this year’s UKSIF lecture on 17th November. If readers of RI would like to attend – please register here second is contract-based DC as opposed to trust-based DC. TPR does not regulate contract DC, it is the Financial Conduct Authority (FCA), and there are no trustees. But contract-based DC does now have Independent Governance Committees. Each life insurer has an IGC and they monitor how the insurer delivers the DC products. The IGCs were introduced in something of a hurry and their work and remit is to be reviewed in early 2017.
UKSIF will argue that it would fit the independent, external review function of IGCs if they were given the responsibility of ensuring that financially material factors are properly considered in the contract DC value chain. We see the IGCs as “trustee-like” in terms of remit (but not in terms of law) and we would like to see that role expanded. Without someone doing that work the saver contract-based DC schemes is exposed.
Finally, and a little different, is how charities approach fiduciary duty. The Charity Commission has overseen and been instrumental in some very good developments, most recently producing guidance on the recent Charity Act (CC14).
It does feel a little churlish then for us to call for more – but that is what we are doing. We have written to them asking that they issue guidance for charity trustees after Christopher McCall QC issued his opinion last year on how trustees should approach carbon intensive investments. Our interpretation is that McCall went further than the Law Commission since the fiduciary duties placed on charity trustees allow them greater discretion. With his opinion representing a new and potentially important interpretation, we have written to the Charity Commission asking them to give guidance on the topic and we hope they can.
Simon Howard is Chief Executive of the UK Sustainable Investment and Finance Association.
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