Is it always about the money? New investment guidance for trustees

By Jennifer Bell

The Law Commission has issued its report on the fiduciary duties of investment intermediaries. The focus of the report is on pension scheme trustees, but it also includes some recommendations in relation to contract-based schemes.

The report contains specific guidance (with the title ‘Is it always about the money?’) for pension scheme trustees on their duties when setting their investment strategy. It recommends that the guidance should be disseminated to trustees, endorsed by the Pensions Regulator and, in the longer term, included in a code of practice. The guidance particularly focuses on the extent to which environmental, social or governance (ESG) factors should be taken into account. Key points in the guidance include the following: the primary purpose of pension trustee investment powers is ‘to secure the best realistic return over the long term, given the need to control for risks; trustees should always take into account financial factors — not simply to maximise returns but to balance risk against return; and non-financial factors may be taken into account where trustees have good reason to believe that this reflects the view of the members and there will be no significant financial detriment. This raises the possibility of trustees consulting with members on certain aspects of their investment strategy.

Although not legally binding, the guidance does give trustees a helpful structure to follow when considering investment strategy, particularly where ESG factors come into play, and trustees should not be criticised for taking it into account. Trustees may wish to discuss with their investment advisers whether, in the light of the guidance, they should be reviewing their statement of investment principles (SIP) or any aspect of their investment strategy…

Click on the link below to read the rest of the Nabarro briefing.

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