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Pensions & Social Investment: Law Commission review

June 27th, 2017

We are delighted to welcome the Law Commission review of ‘Pensions & Social Investment’ published June 2017.

This important review, whilst not fully digested yet, appears to support and even advance the view that social, as well as other related ethical and environmental considerations should form part of our pensions investment landscape and decision making.

You can see pensions media coverage of the Law Commission report here.

Or download the full report here

The Law Commission introduction to this document reads as follows:

“Our findings on social investment

The barriers to social investment by pension funds that we identified were, in most cases, structural and behavioural rather than legal or regulatory.

We set out options for reform where we have identified steps which could be taken by others to address these barriers. We also make some recommendations where we have identified that the law could be improved so as to reduce the impact of these barriers. These recommendations were identified in our 2014 report and have been updated in light of the current pensions landscape.

We recommend that:

  • For trust-based pensions, the Occupational Pension Schemes (Investment) Regulations 2005 should be amended in the following ways:
    • The reference to “social, environmental or ethical considerations” should be amended to ensure that it accurately reflects the distinction between financial factors and non-financial factors.
    • There should be a requirement that the statement of investment principles (SIP) produced by trustees should state trustees’ policy (if any) on stewardship.
  • For contract-based pensions, the Financial Conduct Authority should require schemes’ Independent Governance Committees to report on a firm’s policies in relation to:
    • evaluating the long-term risks of an investment, including relating to corporate governance or environmental or social impact;
    • considering members’ ethical and other concerns; and
    • stewardship.
  • We also recommend that the Financial Conduct Authority should issue guidance for contract-based pension providers on financial and non-financial factors, to follow the guidance for trust-based schemes given by The Pensions Regulator.

We suggest ‘options for reform’ in the following three areas:

  • investment in social enterprises (such as charities and community interest companies);
  • investment in property and infrastructure; and
  • encouraging savers to engage more actively with their pensions.”

[http://www.lawcom.gov.uk/project/pension-funds-and-social-investment/]

 

Additional Information

Published 18 June 2018 – The FCA response to this review is here

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