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UK Pension Trustees Get Green Light to Consider Sustainability in Investments

Pension trustees can now consider sustainability factors. This shift could reshape the economy and secure retirees' future.

There are brick houses, pipes, blue gate, ladder, bicycles, red car and trees at the back.
There are brick houses, pipes, blue gate, ladder, bicycles, red car and trees at the back.

UK Pension Trustees Get Green Light to Consider Sustainability in Investments

In the UK, a significant shift in pension investment practices is underway. A recent proposal aims to clarify that pension trustees can factor in sustainability and systemic risks when making investment decisions. This move aligns with the evolving concept of 'best interests' in fiduciary duty and the growing influence of sustainability considerations in the pension world.

Currently, some UK pension trustees, managing vast assets (over £3tn in 2024), are already investing according to the highest ESG standards. This trend is set to increase, with several major schemes like Universities Superannuation Scheme (USS), National Employment Savings Trust (NEST), and Legal & General Investment Management committing to integrate sustainability and systemic risk considerations by 2025, in collaboration with ShareAction.

The law is not the barrier preventing trustees from considering sustainability factors. Instead, the root cause lies in the economic system's chronic weaknesses, such as unsustainable practices and resource overexploitation. These issues are now being internalized in pension investment decisions. A legal opinion even argues that trustees can consider pensioners' standard of living in retirement, impacted by climate resilience, as a financial factor in their decisions.

The proposed clarification in the UK aims to empower pension trustees to consider sustainability and systemic risks in their investment decisions. With their substantial assets, trustees can influence and engineer the economic system they serve, driving a transition towards a more sustainable future. This shift reflects the evolving understanding of 'best interests' in fiduciary duty and the growing recognition of sustainability considerations in pension investments.

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