Responsible investment bill proposed to improve trustee accountability

ShareAction has joined with the All Party Parliamentary Group on Sustainable Finance in proposing new legislation to MPs, which would force investors to consider the impact of environmental, social and governance (ESG) issues on behalf of their beneficiaries.

The proposed Responsible Investment Bill would strengthen the legal duties of fiduciary investors – primarily pension trustees and their asset managers – to act in the best interests of their beneficiaries, by stipulating in law that “best interests” include environmental and social considerations.

If enacted, the bill would force investors to give greater attention to their climate impacts, by requiring that any “default” funds and any funds marketed as “sustainable” align with the Paris Agreement goal to limit climate change to below two degrees.

The Financial Conduct Authority and The Pensions Regulator would be tasked with supervising compliance, mirroring recent steps taken by the Swiss and Dutch governments.

To ensure that investors are aware of the environmental and social impacts of their activities, the bill proposes the creation of a UK Council for Investor Due Diligence regarding human rights and the environment.

The council would research company practices and issue alerts and recommendations to investors, who would be required to respond within 60 days, explaining how they intend to mitigate or avoid complicity in serious violations of human rights or environmental crimes by investee companies.

The bill also sets out clear duties for fiduciary investors to understand their beneficiaries’ views and to respond to their reasonable requests for information, aimed at improving transparency and accountability of pension trustees to their beneficiaries.

Catherine Howarth, Chief Executive of ShareAction said: “We can and must ensure that the UK’s mighty investment industry does more to meet the long-term needs of ordinary savers, whilst avoiding investment decisions that cause grave environmental harm or violate human rights,” adding that the bill would make powerful institutional investors accountable and transparent about the decisions they make.