A campaign group has attacked the UK government for failing to bring in regulation for “financially material” environmental, social, and governance (ESG) risks.
The Department for Work and Pensions (DWP) consulted earlier this year on changes to the UK’s investment rules for pension funds. One change suggested by the Law Commission—the body that provided the recommendations upon which the consultation was based—was to require trustees to take into account ESG risks that may impact their portfolios financially.
ShareAction, which promotes responsible investment by pension funds and other institutional investors, criticized the DWP for rejecting this change, and claimed it should have done more to address diverging opinions among the consultation’s respondents.
ShareAction Chief Executive Catherine Howarth claimed the DWP had “ignored the chance to bring interested stakeholders together… and instead taken six months to produce an old-school consultation response rejecting change”.
In its response to the consultation, the DWP said trustees “now have a good awareness of their duty to consider factors, including ESG factors, which may be financially material to the performance of their investments over the long-term”.
However, Howarth argued that this stance risked “prejudicing savers’ best interests”, and called for “clarity in statute” over the fiduciary duties of trustees.
“The government could still take the opportunity to work with stakeholders to find a consensus position that overcomes an antiquated and narrow view of fiduciary duty,” Howarth added.
Major research papers this year from Mercer and The Economist Intelligence Unit have shown the financial impact of climate change, modelling how different asset classes will be affected by rising global temperatures.
UK pension trustees can have significant influence over investment decisions, particularly in smaller funds, despite often having little financial experience.
ShareAction has previously successfully lobbied for oil companies Shell and BP to be more transparent to shareholders about the effects of climate change on their businesses.
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