Investors should be legally obligated to understand plan participants' views and be transparent about the environmental, social and governance factors affecting their investments, according to a proposal for new U.K. regulation.
The Responsible Investment Bill was proposed by responsible investment charity ShareAction and presented to Members of Parliament on Thursday. It calls for MPs to support a strengthening of legal duties for retirement plans' trustees and their money managers, requiring them to act in the best interests of their beneficiaries on ESG considerations. Under the proposal trustees would also be obligated to respond to plan participants' requests for information regarding ESG factors in their investments.
"The bill contains provisions on a wide array of legal reforms to the regulatory framework underpinning investment. We've already been working with pension schemes on implementing some of these provisions, including for example in the Pension Schemes Bill which is this week at committee stage in the House of Commons," Fergus Moffatt, head of U.K. policy at ShareAction, said in an emailed comment.
But the proposed bill goes even further than current regulations and the upcoming pensions bill by proposing the launch of a U.K. council for investor due diligence. The council would be tasked with researching companies and issuing recommendations to investors on human rights violations and environmental damage by portfolio companies. Investors would be required to explain within 60 days how they intend to mitigate or avoid human rights or environmental issues.
The Responsible Investment Bill also proposes that beneficiaries are given powers to require companies to fix issues where directors of portfolio companies have fallen below a reasonable standard.
Additionally, the bill would require investors to align any default investment options and selected sustainable investment strategies with the goal to limit global temperature increases to below 2 degrees Celsius.
"This bill represents a clear pathway to achieving that aim and I look forward to supporting it over the coming months and years," Sir Ed Davey, chairman of the All Party Parliamentary Group on Sustainable Finance and leader of the Liberal Democrats in the U.K., said in a news release.
Catherine Howarth, CEO of ShareAction, added in the release: "This bill will make powerful institutional investors accountable and transparent about the decisions they make on behalf of so many of us. We commend it to every MP and look forward to engaging with the government on the big ideas it contains."