By Rachel Haworth, UK Policy Manager, ShareAction
2020 has been a year like no other.
It revealed the fragility of our societies, and shined a light on inequality worldwide – much like other crises before it, the poorest and most vulnerable have been hit the worst from the coronavirus pandemic.
2020 has also highlighted our interconnectedness – not just as people, but the system that support us.
When one collapses, we all fall down. Reforms to the financial system have often been most focused on climate change. But, while preparing for one crisis, we have been shocked by another.
To build resilience we need to move from a focus in individual risks, to a focus on collective impact.
That’s why we’re proposing a new law – a Responsible Investment Bill. To make sure our investment system helps to fix, rather than aggravate, the social and environmental problems we’re all facing.
Here are five things you should know about it:
1.The Responsible Investment Bill would build a financial system that acts in our ‘best interests’
Although (most) investors managing your pension money have to act in your ‘best interests’, there’s been a lot of debate about what this actually means.
Historically, it’s been interpreted as what will generate the biggest financial returns.
And while this is important, we need to add a new focus, one which takes into account the world pension savers are likely to retire into - one with clean water, a stable climate and secure work for their grandchildren, for example.
In this Bill, we’re proposing investors take a more rounded view of what acting in the ‘best interests’ of their savers really means.
2. It aims to build transparency
We’ve supported a lot of pension savers to ask for information about how their money is being invested.
It’s been shocking to see how difficult it’s often been for them to get an answer to a simple question.
We’ve proposed that investors should be obliged to respond to any reasonable request for information – providing the transparency needed for savers to know where their money is being invested.
After all, it’s your money.
3. It would ensure pension providers ask your views!
At the moment, pension trustees aren’t under any obligation to ask for your views about how they invest your savings.
The Bill would require investors to ask you about what you think.
They won’t be obliged to follow everything you say – they’re the experts and they’re investing money for a lot of different people – but it’s only right that they should consider what you think before they make decisions about your money.
4. It would ensure our money works harder to reduce human rights abuses & environmental harms
Sadly, it’s all too common for human rights abuses and environmental destruction to be found in the supply chains of big companies.
While some investors investigate companies for these kinds of harm before investing in them, many do not.
We don’t believe it’s acceptable for investors to make money at any cost – especially when they are using our pension savings to do so.
We’ve proposed setting up a “UK Council for Investor Due Diligence” that can carry out research and alert investors to problems in the companies they own. Investors can then use their significant power to call for companies to root out these problems, and even sell their investments where companies fail to do so.
5. It would align your pensions with the goals of the Paris Agreement
But this is only a first step.
If we are to limit global warming to 2 degrees or below, we need to make sure our money is being invested in a way that’s compatible with Paris Agreement goals.
We’ve suggested a new regulatory regime that helps investors to develop and follow a smooth trajectory towards a carbon-neutral economy.