The UK Sustainable Investment and Finance Association (UKSIF) and a number of UK asset owners are calling on the government and other policymakers to consider greater clarification of fiduciary duties for UK pension schemes.
The non-profit member body said there was currently a level of inconsistency in the interpretation and depth of understanding across schemes regarding the extent to which ESG factors and particularly impacts should be addressed and interpreted within pension scheme trustees' fiduciary duties.
It said the updated green finance strategy published in March, Mobilising Green Investment, announced that the government would engage stakeholders on clarifying fiduciary duty, following engagement with stakeholders and members of the House of Lords during the Financial Services and Markets Bill.
UKSIF said it believed the government could help provide schemes with a much clearer expectation of the extent they can and should take account of sustainability impacts, social and other sustainability considerations by providing guidance for the market and ongoing additional support, including industry-wide training.
It said this could help reduce the present confusion and inconsistency in the area.
UKSIF recommended that relevant government departments - including the Department for Work and Pensions, as well as regulators such as the Financial Conduct Authority and The Pensions Regulator - issue guidance for UK occupational pension schemes on a statutory or non-statutory basis.
UKSIF said it believes that factoring in financially material ESG issues and actively managing associated risks and impacts is consistent with fiduciary duties and this clarification would make this clear across the market.
UKSIF chief executive James Alexander said: "We continue to see some hesitancy in parts of the UK's pension sector and the wider industry over what sustainability factors and particularly impacts can or should be taken into account on behalf of beneficiaries.
"We have seen this particularly with the inclusion of social factors which we believe are crucial to consider in the long-term performance of companies, portfolios and economies. This is why we believe that it is vital the government puts out industry guidance on fiduciary duties, providing schemes with the support and guidance needed on the ESG risks and impacts they should already be considering when making investment decisions."
UKSIF government affairs and policy manager Heidi Douglas-Osborn added: "We believe that guidance would be a great support to the industry and are excited to have the endorsement of leading asset owners.
"This guidance would not only provide a clearer direction for pension scheme trustees but help the UK move toward its net zero goals and support a long-term sustainable finance system. While we do not think that substantive changes are necessarily needed to the law, the core issue we identify is around interpretation of fiduciary duty and we would like to better support trustees and others to help fulfil these duties."
Full details of UKSIF's call to action - which has the support of a number of its asset owner members including Scottish Widows, Phoenix Group, Brunel Pension Partnership and Nest - can be found in its briefing on fiduciary duty here.