ShareAction will today propose 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 strengthen the legal duties of fiduciary investors (primarily pension trustees and their asset managers) 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, welcomed the bill, saying:
“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."
If enacted, the bill would force investors to give greater attention to their climate impacts, by requiring that any ‘default’ funds and any funds marketed as ‘sustainable’ align with the Paris Agreement goal to limit climate change to below 2°C. The FCA and TPR would be tasked with supervising compliance, mirroring recent steps taken by the Swiss and Dutch government.
To ensure that investors are aware of the environmental and social impacts of their activities, the bill proposes the creation of a UK Council for Investor Due Diligence regarding human rights and the environment. The Council would research company practices and issue alerts and recommendations to investors, who 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. The concept of the Council draws inspiration from existing arrangements for major institutional investors in Sweden and Norway.
The Bill also includes provisions to improve transparency and accountability of pension trustees to their beneficiaries, noting that 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. As such, 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 Bill addresses enforcement, noting 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”. As such, the Responsible Investment Bill would provide enforcement powers through judicial redress for beneficiaries.
Commenting on the launch, Catherine Howarth, Chief Executive of ShareAction said,
“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.”
Following the launch, ShareAction will work with parliamentarians of all parties, notably members of the APPG on Sustainable Finance, and with allies in civil society to build widespread backing for the introduction of such a Bill before the end of the current parliament.
Notes to editors
For all enquiries and interview requests, please contact:
Conor Quinn, Media Communications Manager, ShareAction
firstname.lastname@example.org +44 (0)7444 696 214
Read the proposed bill (embargoed to 05 November): The Change We Need: Model legislation to promote responsible long-term investment by institutional investors
Watch a short animated video on Why we need a responsible investment bill
The launch event will be held at 16.00GMT on Thursday 5th November and conducted under the Chatham House rule. Speakers include:
- Chair, Sir Ed Davey, Leader of the Liberal Democrats, Chair of the APPG on Sustainable Finance
- Catherine Howarth, Chief Executive of ShareAction
- Sarah Gordon, Chief Executive of the Impact Investing Institute
- Oliver Hart, Lewis P. and Linda L. Geyser University Professor at Harvard University, and the 2016 co-recipient of the Nobel Memorial Prize in Economic Sciences
- David Rouch, international regulatory lawyer and author of The Social Licence for Financial Markets
ShareAction is a campaigning organisation pushing the global investment system to take responsibility for its impacts on people and planet, and use its power to create a green, fair, and healthy society.