In 2020 the world faced a health crisis. The coronavirus pandemic brought economic and social turmoil. It exposed the fragility of societies and underscored a truth often forgotten: we are all connected. Not just people, but the systems that support our lives – including the financial system. When one part collapses, we all fall down.

Our Responsible Investment Bill sets out a vision for a clearer and stronger role for our financial system within society and the economy.

Investors channel money across the economy. They have huge influence in how companies are run. As much as 50 per cent of all money invested comes from pension savings. The actors in the financial sector – pension fund trustees and their asset managers – are ‘fiduciaries’. They must put their clients best interests ahead of their own. How they invest has direct consequences for their customers, but also for everyone in society.

This matters to us all.

The long-outdated view that the only fiduciary duty is to maximise returns has meant that for too long the investment sector has failed to consider wider social and environmental impacts. The UK Government has taken steps to clarify how much these wider interests should be considered, but investment practice does not yet match this ambition.

Meanwhile, much focus to-date has been on climate change. In preparing for this crisis, we sleep-walked into another – a health crisis which rocked our societies and our economy. We must recognise the fragility of an economy focused on individual risk over collective impact. Our investments need to build wealth, but also resilience.

Otherwise, we will walk into other crises. We will all fall down again.

The Bill sets out a vision for a clearer and stronger role for ‘fiduciary investors’ within society. But it does not try to change the core principles of prudence, loyalty to beneficiaries and impartiality. And it does not allow for the government to meddle in how pensions are invested.

So what does the Bill do?

It widens the idea of ‘best interest’:

We all depend on a healthy, stable, secure society and environment. This must therefore be factored into ‘best interest’ – alongside the traditional concept of making money. The Bill encourages investors to take this boarder perspective – to think about the consequences of investments on the wider economy, communities and the environment.

It embeds ‘double materiality’:

Double materiality is taking hold in the finance sector. This is the idea that investors should not only factor in the risks of social and environmental issues on their investments, but that they should also consider the impact their investment decisions have on society and the environment. The investment system can no longer be allowed to operate in a vacuum. We therefore propose that the government establish a UK Council for Investor Due Diligence to assess the impacts of companies’ activity and to issue recommendations to investors.

It aligns the sector with the Paris climate goals:

The Bill would require investors’ ‘default’ funds and any ‘sustainable’ funds align with the ambitions of the Paris Climate Agreement, to hold warming to below 2C and to strive for 1.5C.

It aims to build a transparent and accountable investment system:

Threaded through the Bill is the idea of transparency. In other sectors, customers’ expectations have increased, but the investment sector has failed to keep pace. The Bill makes clear that fiduciary investors have a duty to seek out their beneficiaries’ views, to use this information to inform their stewardship and investment decisions, and communicate those decisions back to customers. This gives greater power to savers to ask questions about how and where their money is invested.

We are calling on Government ministers, MPs and regulators to step up by enacting the important provisions contained within the Bill. We urgently need a reformed regulatory framework that enables the financial services sector to build wealth as well as resilience.

If you are interested in hearing about opportunities to support this vital work please contact Fergus.moffatt@shareaction.org.