A worrying new climate change report should have the whole pensions sector thinking hard about their long-term strategies and what is in members’ and savers’ best interests, writes Pensions Expert editor Nick Reeve.
The concept of fiduciary duty has come under the microscope over the past year or so for various reasons, from pension schemes being challenged over investments in weapons manufacturers, to fears that it is being threatened by the government’s ‘mandation’ plans in the Pension Schemes Bill.
Most recently, pensions minister Torsten Bell announced that the government would explore new “statutory guidance” to enable a wider interpretation of fiduciary duty.
I’ve often heard it said that fiduciary duty can be unclear when it comes to considering how the effects of climate change can be taken into account when making investment decisions – for example, divesting from fossil fuel companies.
But others contend that it’s far simpler than that. Hywell Robinson, a partner at law firm Temple Bright and a font of great legal tidbits on LinkedIn, posted this week on fiduciary duty, stating simply: “When trustees make investment decisions, they should do so having regard to the best financial interests of their members.”
He warned that “misleading information about trustees’ fiduciary duties continues to be published” (not by Pensions Expert, hopefully!), meaning that “we ought to state the correct position with similar regularity”.
Fiduciary duty: Is it time for legislation?
With the government threatening to mandate private markets investment for DC pension schemes, Andy Lewis and Stuart O’Brien of Sackers argue that trustees’ fiduciary duty deserves a more stable, long-term legal foundation, in this article from June 2025. Read the full column.
Robinson’s point is that fiduciary duty currently is focused only on the financial best interests of a scheme’s membership. So, when considering non-financial factors, trustees must still take into account how these might affect the returns they get.
Why am I waffling on about this? Well, this week brought a worrying new report from the Institute and Faculty of Actuaries and the University of Exeter. Arguably, the biggest headline from it was the finding that previous estimates of the economic impact of climate change may have been substantially underestimating the potential hit to global GDP.
The report cites research from the UK’s Climate Financial Risk Forum, which suggests a “plausible, severe combined climate and nature shock scenario” could lead to a global economic contraction of between 15% and 20%. For context, the global economy shrank by 3.4% during the Covid-19 pandemic, according to Statista.
This means that it is on all of us, especially those making investment decisions on behalf of pension scheme members, to take these reports seriously and consider how to incorporate this risk into short-, medium-, and long-term decision making.
Pension schemes can’t save the world alone, but they can make a serious positive impact on the environment and the world into which their members will retire.
This editorial initially appeared in Pensions Expert’s Friday Takeaway email, summarising the biggest news of the week and the latest appointments. To sign up, please register for free.
