In June, the Department for Work & Pensions (DWP), published a consultation on clarifying trustees’ investment duties. This addressed the extent to which Environmental, Social and Governance (ESG) criteria should influence trustees’ decision making and also considered the extent to which trustees should consult members about investment policy. This represented something of a sea-change for trustees, and challenged many longestablished beliefs about what trustees should take into account when selecting assets for their scheme’s portfolio. To understand what is now being proposed, and why it challenges so many long-standing assumptions, it is worth reviewing the orthodoxy that has persisted for the last 35 years.


In 1985, the Cowan v Scargill judgment ruled that in making investment decisions, trustees were required to consider members’ best financial interests. This appeared to place significant constraints on trustees’ capacity to consider factors such as the environment or social impact. Although the Pensions Act 1995 (PA 95) required trustees to state in their Statement of Investment Principles (SIP) the extent to which investment policy was influenced by ethical considerations, it remained commonly believed that trustees ultimately had to consider profit over principle.

The current consultation follows a Law Commission review of 2014, and now gives strong guidance on the inclusion of ESG within the process of selecting investments. Members may recall that PMI’s Policy & Public Affairs Committee issued a member survey as part of its formal response.

The Government proposes that trustees now be required to include a statement within the SIP describing their policy on ESG.

This seems uncontroversial: it is an extension of the provisions in force since PA 95, and was strongly supported by members.

However, a more contentious proposal was that trustees be required to consult members about investment decisions. Many respondents considered this a step too far. Some argued that overall levels of member engagement would be too low to have any meaningful impact. Others were concerned that such a process would be vulnerable to being hijacked and manipulated by minority activist groups.

A third proposal was that trustees be required to record their involvement in corporate governance. This was largely supported by PMI members, who took the view that institutional investors have historically performed poorly in their stewardship of publicly quoted companies.

The Government’s proposals show the extent to which thinking has changed concerning the perceived duties of trustees.

This perhaps reflects the extent to which views of the public generally have evolved in recent decades. Trustees are now required to behave as responsible citizens, and to balance difficult priorities of financial security on the one hand, and social responsibility on the other.

Whilst the impact on trustees may be to make the role more complex than has been the case in the past, the overall consequence for society, and indeed the planet, is to be welcomed. This represents a major new challenge for trustees, and one which will see PMI work closely with the trustee community in order to achieve successful implementation.


By Tim Middleton – PMI Technical Consultant

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