LGPS board holds off on ‘fiduciary duty’ guidance

A key element of the planned guidance on responsible investment for Local Government Pension Scheme member funds has been put on hold because of uncertainty over the impact of the Pensions Scheme Bill and a yet-to-be-delivered Supreme Court ruling.

The LGPS Scheme Advisory Board (SAB) said amendments to the bill—which could have a “significant impact” on the way investment-strategy statements were prepared—and the pending court ruling meant it would be “imprudent” to give definitive advice on fiduciary duty.

Earlier this month, Department for Work and Pensions minister Baroness Stedman-Scott introduced an amendment to the Pensions Scheme Bill related to environmental, social and governance (ESG) practices that would make it mandatory for pension schemes to report on climate-change strategies.

Should it become law, it would require pension-scheme trustees to review the impact of climate change on their investment strategy, manage exposure to those risks and set parameters for it.

Separately, the Supreme Court is due to rule on the legality of 2016 guidance from the Department for Communities and Local Government—now the Ministry of Housing, Communities and Local Government—banning LGPS member schemes from boycotting investment in particular countries when it is not government policy to do so.

The Palestine Solidarity Campaign brought judicial review proceedings against the decision on the grounds that it was outside the powers granted to the secretary of state by the 2013 Public Service Pensions Act. It is committed to a boycott, divestment and sanctions drive against companies that trade in products made in the occupied territories and argues that LGPS member schemes should be able to make their own ethical decisions on investment.

The Supreme Court heard the case on 20 November last year, but has yet to hand down its decision.

The SAB consulted on the first part of its draft responsible-investment guidance between early November last year and early January this year.

But in an update this week it said it had decided to “take stock” until the Supreme Court judgment had been handed down and there was a greater degree of clarity on the proposed climate-change provisions in the Pension Schemes Bill.

“Notwithstanding this decision, the board is mindful that there are matters outside of fiduciary duty where advice and information would continue to be helpful,” it said.

“The board has therefore decided to restructure the proposed guidance to explain and clarify the terminology associated with responsible investment and provide investment decision makers with a range of information, case studies and tools to help them meet the challenges associated with responsible investment.

“The revised document will be circulated in draft to scheme stakeholders for comment in the normal way.

“This change of direction will not preclude the board from addressing the issue of fiduciary duty as a separate issue once the Supreme Court judgement in the foreign boycott case has been handed down and when there is more certainty about the government’s proposals under the Pension Schemes Bill.”

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