Will pension fund investments go green?

On 18 June 2018, the Department for Work and Pensions (DWP) published a consultation on proposals to ‘clarify and strengthen’ trustees’ investment duties, including on how they take account of financially material environmental, social and governance (ESG) matters.

Background

This consultation is the latest in a series of reviews and consultations over the last six years, starting with the Kay review of UK Equity Markets and Long-Term Decision Making in 2012. One of Kay’s recommendations was that the Law Commission review the legal concept of fiduciary duty as applied to investment.

The Law Commission’s consequent review in 2014 concluded that trustees should take into account financially material factors regardless of their source i.e. ESG risks should be treated in the same way as other risks such as interest rate risk, liquidity risk, political risk etc. Members’ views could also be taken into account, where this would not involve significant financial detriment.

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