A new bill is being presented to MPs that will legislate the requirement for asset managers to incorporate environmental and social considerations into their investment decisions. It also obliges any funds marketed as ‘sustainable’ to meet set requirements that contribute to limiting climate change or risk facing regulator action.
ShareAction, the charity promoting responsible investment, is today (5 November) proposing the new legislation to MPs at an event held in collaboration with the All Party Parliamentary Group on Sustainable Finance.
The proposed Responsible Investment Bill would expand the legal duties of fiduciary investors, such as asset managers and pension trustees, to act in the best interests of their beneficiaries, by stipulating in law that ‘best interests’ include environmental and social considerations.
Sir Ed Davey, chair of the APPG and leader of the Liberal Democrats and Nobel prize winner Oliver Hart have thrown their support behind the bill which, if enacted, would also mean any funds labelled ‘sustainable’ would need to be aligned with the Paris Agreement goal to limit climate change to below 2°C. The Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) would be charged with supervising the compliance, which ShareAction said would mirror similar moves taken by Swiss and Dutch governments.
Furthermore, the bill would force investors to give greater attention to their environmental and social impacts of their activities and a UK Council for Investor Due Diligence would be created to research company practices and issue alerts and recommendations to investors. Asset managers 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. Again, this follows similar steps taken in Sweden and Norway.
In a statement, ShareAction is proposing the bill includes provisions to improve transparency and accountability of pension trustees to their beneficiaries, with the organisation noting “transparency in the pensions sector has failed to keep pace with improvements in technology and customer experience in other parts of the financial services sector”. The bill sets out clear duties for fiduciary investors to understand their beneficiaries’ views and to respond to their reasonable requests for information.
Finally, the proposed bill would also provide enforcement powers for judicial redress as ShareAction notes that “one of the weaknesses of the directors’ duties introduced under section 172 of the Companies Act 2006 is the lack of enforcement powers where directors have fallen below a reasonable standard”.
Liberal Democrat leader Sir Davey commented: “Government and regulatory action are needed to help us achieve our international climate commitments and to place the financial services sector on a more sustainable footing. This Bill represents a clear pathway to achieving that aim and I look forward to supporting it over the coming months and years.”
Catherine Howarth, chief executive of ShareAction, added: “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. This bill will make powerful institutional investors accountable and transparent about the decisions they make on behalf of so many of us. We commend it to every MP and look forward to engaging with the government on the big ideas it contains.”
