Policymakers need to lead by example and incentivise active ownership so that investors, companies and society benefit from the long-term returns.
Ownership Day 2016 asked policy makers and regulators to help to clarify the roles and duties of investment intermediaries. In particular we asked for clarification surrounding fiduciary duties for DC pension trustees, charity trustees and for local authority pension schemes.
During the 2016 campaign, UKSIF was calling on the Government, regulators and others to implement the following key campaign ‘asks’:
1. TPR to ensure its guidance relating to the new DC code of practice clarifies the distinction between financial and non-financial factors.
TPR is currently consulting on its new DC code of practice. Over the summer it will publish and consult on a range of ‘how to’ guides which will go into further detail on the roles, responsibilities and duties of trustees. We want to ensure that the guidance is clear that trustees should take account of financially material factors including ESG and may consider non-financial factors.
2. Clarification in Charity Commission Guidance for charity trustees on their approach to carbon intensive investments.
Christopher McCall QC has recently published his legal opinion re ethically questionable investments. He concluded that some charities may be legally required to re-evaluate their approach to carbon intensive investments. In particular he argues that investment in carbon intensive investments may in many cases be “irreconcilable” with the intent behind charities with a wide range of different missions, such as missions relating to the environment, poverty and health. UKSIF could use this momentum to lobby the Charity Commission to change its guidance to reflect the latest legal thinking.
3. The Department for Communities and Local Government should acknowledge in new rules for LGPS schemes that the Secretary of State will only use the new “power of intervention” when an authority breaches its fiduciary duty.
New rules that govern how LGPS funds invest have conflated financially material and non-financial factors. This is concerning because investments based on non-financial factors will now have to adhere to UK foreign policy. This could be very damaging to funds seeking long-term sustainable returns. The Government should also be clear that the only time the Secretary of State will use the new ‘power of intervention’ is where a fund is seen to be in breach of its fiduciary duty.