The UK Sustainable Investment and Finance Association has claimed laws around investors’ fiduciary duties hinder trustees from taking long term investment decisions, and called for change.

In a statement issued as the Law Commission’s consultation on fiduciary duties for investment intermediaries closes, UKSIF said the commission should enlarge on its statements on investor engagement to reflect the broad range of stewardship activities undertaken across the investment chain.

“Unfortunately, it is clear that in practice the current law on fiduciary duty leaves many pension fund trustees – who are often heavily reliant on the sometimes cautious legal and investment advice that results from lack of clarity – confused when it comes to deciding how far they can consider, for instance, environmental, social and governance issues in their investment decisions,” UKSIF chief executive Simon Howard said.

The Law Commission launched its consultation on trustees’ fiduciary duties last October, following the Kay review of long-term decision making in UK equity markets.

It explores where the law is right to allow trustees to consider ethical issues only in limited circumstances, and whether trustees’ legal obligations are conducive to investment strategies in the best interests of the ultimate beneficiaries.

The consultation also asks whether the duties on contract-based pension providers to act in the interests of members should be clarified and strengthened, and whether pension providers should be duty-bound to review the suitability of investment strategies over time.

Howard said UKSIF is concerned by the commission’s analysis of current approaches and methods in stewardship and engagement.

“Their paper fails to recognise the excellent work that is being undertaken by many asset owners and their fund managers in engaging with companies on issues which could significantly affect their holdings,” he said.

In its response to the consultation, the National Association of Pension Funds said trustees already have a good grasp of their fiduciary duties, and understand their responsibilities are not limited solely to financial interests.

NAPF policy lead on stewardship Will Pomroy said the current legislation provides the flexibility to use their discretion and judgment appropriately.

“This flexibility extends to the consideration of environmental, social and governance - ESG - factors and to the fulfilment of their stewardship responsibilities as set out within the UK Stewardship Code,” Pomroy said.

On contract-based pensions, the association urged further thought be given to how long-term products like pensions savings vehicles are governed and regulated.

The NAPF suggested greater emphasis be put on the provider's responsibility to be as transparent as possible about the things that matter most to the consumer and to communicate these clearly and effectively.

“There is widespread agreement that a governance vacuum in contract-based pension arrangements can lead to unsatisfactory outcomes for members but the assignment of a fiduciary duty would not improve the situation,” Pomroy said. “The issues relating to contract-based schemes could be better addressed through clear standards of conduct applicable to employers and providers in those areas in which they exercise discretion.”

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