Lack of clarity over fiduciary duty and a heavy sustainability reporting burden are key issues for the pensions industry, says UKSIF

At a glance

The UK government is planning an overhaul of the investment rules regulating the pensions sector in attempt to spur growth and stimulate investment in UK assets

Simplifying sustainability rules should be part of the reform agenda, with a greater focus on transition planning rather than lengthy disclosures, says UKSIF

The fiduciary duty of pension trustees with regards to climate change remains an area of contention that requires clarification from regulators

The UK government should amend sustainable investment and reporting regulations for UK pension schemes, to enable more effective decision-making and reduce the reporting burden, says a leading financial industry association.

In its pensions review report, released today, the UK Sustainable Investment and Finance Association suggests creating an industry-led task force to help streamline sustainability reporting rules and create more effective forward-looking disclosures.

UKSIF suggests pension funds face a disproportionate sustainability reporting burden, given they have “relatively more limited resources” than other market participants such as investment managers and large listed companies.

The report is in response to government plans aimed at implementing wide-ranging reforms to the pensions sector to spur growth and unlock more capital for investment.

The UK’s pensions industry is worth more than £3tn, with UKSIF members representing a third of the sector, the association says.

Among its recommendations, UKSIF suggests establishing shorter but clearer transition plans for pension funds, covering around 15 to 20 pages, that take a more strategic approach in reducing emissions. This method would be preferred over a lengthier report, based on the Task Force on Climate-related Financial Disclosures, that is more focused on portfolio-level decarbonisation, it says.

In its election manifesto, Labour said it would make transition plans for UK pension schemes mandatory.

Clarifying trustees’ fiduciary duty will enable pension schemes to better develop their in-house responsible investment approaches, and ultimately stimulate them to allocate more capital to UK clean energy projects
UKSIF

While TCFD reporting has been valuable in elevating climate governance and climate risks in the pensions sector, it can be improved and needs to evolve naturally in the coming years, a UKSIF spokesperson told Sustainable Views.

The association also highlights, for example, the complexity of underlying metrics as an area for improvement, and says it favours simplifying TCFD guidance for pension funds to align it better with the expected future adoption by the UK government of International Sustainability Standards Board standards.

Fiduciary duty

In its review, UKSIF also urges the government to provide clarity on the long-standing issue of pension trustees’ fiduciary duties on climate change and other systemic risks, such as nature loss and human rights.

It recommends the government adopts the conclusions of the 2024 Financial Markets Law Committee paper, launch a stakeholder consultation on how fiduciary duty should be evolving, and educate trustee boards on wider sustainability topics such as social inequalities and artificial intelligence.

UKSIF says clarifying trustees’ fiduciary duty would enable pension schemes to better develop their in-house responsible investment approaches, and ultimately stimulate them to allocate more capital to UK clean energy projects.

The ongoing confusion on fiduciary duty has also been flagged by experts as a litigation concern, with the 2023 lawsuit against Shell’s board directors indicating corporate boards could increasingly face liability for alleged breaches of fiduciary duties related to climate change.

Other recommendations made by UKSIF include addressing the growing UK gender pensions gap, with women estimated to receive 39 per cent less median net annual retirement income than men.

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