Question to the Department for Work and Pensions:

To ask the Secretary of State for Work and Pensions, if she will take steps to ensure that fiduciary duty explicitly places a duty on pension fund trustees to consider system risks.

Trustees have a range of duties set out in governing provisions of the scheme, common law and relevant statutory provisions. These include duties to make investment decisions in the best interests of members of the pension scheme. The Law Commission concluded in 2014, that there was no impediment to trustees taking account of Environmental, Social and Governance factors, where they are or may be financially material, and that trustees should take into account financially material factors. The Financial Markets Law Committee’s (FMLC) report in 2024 revisited the Law Commission’s findings and argued that there is a strong case for trustees to consider climate change and other environmental factors as ‘financial factors’ in investment decision-making. The government welcomes the opinion the FMLC reached.

The Law Commission’s 2014 report also stated that trustees may take such factors, which are not strictly and directly financial, into account. This should be to the extent that they would not involve a risk of significant financial detriment to the trust’s funds and where they have good reason to think scheme members would support the decision. The FMLC’s report concludes that financial factors are broad and many factors that may appear at first to be ‘non-financial’ are in fact ‘financial’. Findings from both reports reflect the permissive nature of trustee fiduciary duty, and why the government is not currently considering any change to the law.