Amongst Peers’ work on finance and financial services, one topic with the potential to drive a system-level change in action on climate and nature is an updated and wider interpretation of pension schemes’ fiduciary duty. Duties that exist to ensure that those who manage other people’s money consider the long-term risks to, and consequences of investment decisions.
Some pension scheme trustees feel constrained by an understanding of risk which sees the pension scheme as divorced from the wider global economy and environment, and only able to manage risk by adjusting the investments that make up their portfolio – rather than encompassing wider expectations such as investing for net zero and nature restoration, engaging in depth with the companies in which they invest in, and with Government to set out and deliver the policies which are needed for the transition.
Reflecting Peers’ interest, David Farrar of the Peers for the Planet secretariat chaired an SG Pensions Enterprise webinar which considered the recent Financial Markets Law Committee (FMLC) report and the changes which are needed in law, guidance and pension scheme practice.
Speakers came from members of the FMLC working group, top pension schemes, investment managers, advisers and civil society organisations. Polling questions on the day found that fewer than one-fifth of attendees felt that there was a completely clear understanding of what fiduciary duty meant for them and for pension schemes’ action on climate, and a majority of respondents thought that new regulatory guidance or legislation was required on fiduciary duty.
A final question posed to the audience was what key problems needed to be fixed in relation to pension schemes’ work on climate change, and attendees identified ineffective management of system-level risks, ineffective work on public policy and recourse to box ticking risk management as the greatest issues.
Peers are continuing to engage on this topic with questions to Government and a future promised briefing session for Peers from officials from the Department for Work and Pensions.