Work and Pensions Committee (WPC) chair, Stephen Timms, has written to Pensions Minister, Paul Maynard, to ask for more details about the Department for Work and Pensions' (DWP) plans to engage with industry on fiduciary duty issues.

The DWP previously announced plans to hold a series of roundtables with the industry to clarify fiduciary duty in relation to climate change as part of its 2023 Green Finance Strategy.

Ahead of this, Timms wrote to the minister to highlight a number of issues, particularly in relation to the guidance and advice available to support trustees in their decision-making, which were raised during the committee's recent fiduciary duty session.

In particular, Timms said that whilst industry witnesses said the definition of fiduciary duties is ‘permissive’ and broad enough for suitably skilled people with the right information to make the right decisions, this did not mean that no change is needed.

"We heard that there was a wide divergence in the way trustees were interpreting their duties in this area and that pension funds continued to invest in high emitting sectors despite the financial risks of climate change," he continued.

In particular, Timms said there was general agreement that the Financial Market Law Committee's (FMLC) recent paper had been helpful in clarifying trustees’ fiduciary duties in relation to climate change, with a number of industry experts suggesting that it would be helpful for DWP and The Pensions Regulator (TPR) to put the principles of the FMLC report into guidance for trustees.

Timms explained that whilst some thought the government needed to go further and change the law, others were concerned that attempting to make broad changes to the definition risked confusing rather than clarifying matters and might give rise to unintended consequences.

In light of these industry concerns, Timms asked Maynard for further details on the DWP’s plans are for their proposed roundtables on fiduciary duties, and whether these will look at how best to mainstream the principles set out by the FMLC.

Given the recent defined benefit (DB) funding improvements, and the recent record volumes seen in the buyout market, Timms, also queried how the duties of insurers in considering the climate change risks and impacts of their investments differ from those applying to pension scheme trustees.

In addition to this, Timms said the committee heard evidence that the economic models on the impact of temperature rises used by some investment consultants advising pension scheme trustees did not reflect the findings of the vast majority of climate scientists.

It also acknowledged that TPR has longstanding concerns about the quality of pension scheme governance.

Timms therefore queried whether, as part of the minister's planned work on improving trusteeship, he plans to look specifically at how to build the capabilities and capacities trustees need to be effective in taking account of climate change risks in investment decision-making.

Timms also said that, given legislation to bring investment consultants into the Financial Conduct Authority's (FCA) regulatory perimeter has not been brought forward, as previously recommended by the WPC, it would be helpful if Maynard could explain how DWP and TPR are working with the FCA to ensure that they use appropriate models of the impact of climate change.

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