“The argument that ESG integration is part of good governance for pension funds has been broadly supported across the political spectrum. In fact, ministers of all parties have seen ESG integration as non-problematic.”

Paul Watchman (Honorary Professor, School of Law, University of Glasgow)

Drivers for Action

Interviewees agreed that it is likely that more UK institutional investors will conclude that responsible investment is aligned with their fiduciary duties. They expect this to be driven by a combination of peer pressure, market demand, reputational pressure (e.g. not wanting to be on the front page of the FT) and regulatory pressure (e.g. the FRC paying more attention to the implementation of the Stewardship Code). They also agreed that progress could be accelerated if the UK government were to clarify that asset owners’ fiduciary duty requires them to pay attention to long-term factors (including ESG issues) in their decision-making, and in the decision-making of their agents.

Barriers to Progress

Interviewees identified a number of distinct barriers to progress:

  • The lack of clear legal guidance that asset owners should pay attention to long-term factors and considerations, including ESG issues, in their decision-making and in the decision-making of their agents.
  • The lack of detailed oversight of the Stewardship Code at the aggregate level (i.e. how is investor engagement affecting corporate practice?) and at the level of the individual investor (i.e. how do investors compare to each other?).
  • The perception – often reinforced by consultant and legal advice – that fiduciary duty permits only the maximisation of financial returns.
  • The lack of explicit attention on environmental and social issues in the Stewardship Code.
  • The tendency of investors to focus on corporate governance issues (in particular remuneration), to the relative exclusion of social and environmental issues (perhaps with the exception of climate change). This reflects perceptions on the relative importance of these issues to long-term investment performance, as well as the practical challenges associated with assessing how environmental and social issues affect long-term valuations.
  • Capacity needs in the investment industry. For example, asset owners need to develop their ability to scrutinise and hold investment managers to account for their approach to ESG integration.


In addition to the global recommendations, we recommend that:


The government should amend the Occupational Pensions Schemes (Investment) Regulations to:

  • clarify that fiduciary duty requires them to pay attention to longterm factors (including ESG factors) in their decision-making, and in the decision-making of their agents;
  • clarify that responsible investment includes ESG integration, engagement, voting and public policy engagement;
  • require asset owners to report on how they implement their policies and statements of investment principles. The Pensions Regulator should ensure that asset owners provide meaningful disclosure, by providing guidance on reporting and by critically scrutinising their disclosure.

Financial Reporting Council (FRC)

The Financial Reporting Council (FRC) should:

  • conduct a more detailed analysis of current implementation of the UK Stewardship Code by analysing asset owners’ oversight of their investment managers’ implementation and by analysing the investment and other outcomes that result from the code;
  • highlight those asset owners and investment managers that it considers to be doing a good job of implementing the stewardship code, and those whose implementation appears to be lagging;
  • strengthen the stewardship code by:
    • making it clear that environmental and social issues are important drivers of long-term investment value;
    • providing clear guidance to asset owners that outsource investment management (and associated activities) on how they are expected to deliver on their stewardship obligations.

Corporate pension funds

Corporate pension funds should sign the stewardship code and make public commitments to responsible investment.

The European Commission

The European Commission should provide guidance to the competent Member States authorities on how they should interpret fiduciary duty in the national legal context. This guidance should:

  • Clarify that fiduciary duty requires asset owners to pay attention to long-term factors (including ESG factors) in their decisionmaking and in the decision-making of their agents.
  • Clarify that responsible investment includes ESG integration, engagement, voting and public policy engagement.
  • Encourage Member States to ensure that fiduciary duty and responsible investment-related legislation is harmonised and consistent across Europe.
  • Encourage Member States to monitor the implementation of legislation and other policy measures relating to fiduciary duty and responsible investment, and report on the investment and other outcomes that result.

Read Fiduciary duty in the 21st century: United Kingdom roadmap