ShareAction seeks to reform UK fiduciary duty law

Responsible investment NGO ShareAction is working on proposed amendments to reform fiduciary duty law for the UK pension sector.

If successful, it would mean the group’s amendments would be included as part of the proposed changes currently being made to the UK Pension Schemes Bill. The bill is expected to be put before Parliament this summer, with the group’s own worded amendment potentially included by late March.

The group’s call for legal reform comes after attempts to clarify the issue of trustee fiduciary duty have so far been unsuccessful.

ShareAction has long argued that the law still understands the purpose of pension investments to be solely financial, ignoring the relationship between the financial system and the wider world. As such, the group says now is the time to address this by enshrining the principles in law, rather than relying on interpretations.

The group has urged pension sector stakeholders to reach out with feedback on the proposed regulatory amendments, adding it needs wider government and industry support in order to reform UK fiduciary duty law.

ShareAction’s current proposal is for a targeted piece of legislation to be introduced that would require the government to update investment regulations within a set timeframe. 

By going beyond disclosures, the group’s overall aim is to clarify the consideration of relevant factors, including sustainability and systemic risks, in trustees’ investment decision making, without fundamentally changing the core purpose of paying members’ pensions.

Proposed changes

The aim of the proposal is to explicitly set out in law that trustees must consider and manage system-level risks that cannot be diversified away from.

It also clarifies that trustees may factor in the foreseeable impacts of investments on financial systems, the economy, communities, the environment, and beneficiaries’ present and future standards of living.

However, the group stressed that the proposed changes would not dictate asset allocation. Instead, the proposed considerations would sit alongside other investment principles ensuring trustees can integrate them within a balanced strategy.

Last year, ShareAction published a report – Responsible investment for a better future – setting out guidelines including a proposal for policymakers to amend the law, adding that fiduciary duty should be reformed to drive a more responsible pensions sector.

The report came as the Financial Markets Law Committee (FMLC) published its report on fiduciary duty, where it concluded that sustainability factors can, and should, be considered under fiduciary duty.

However, despite efforts such as the FMLC report, trustees have remained cautious due to the interpretative nature of the existing legal framework.

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