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<p>We want pension schemes to take account of all financial long-term risks when making
investment decisions, and we therefore welcome the Law Commission’s report.</p><p>We
are concerned that some investment decisions may be made with short-term considerations
in mind. This can exclude consideration of options that take account of longer term
financial factors, such as those arising from material environmental, social and governance
(ESG) risks.</p><p>We are concerned that some investment decisions may not appropriately
take into account longer term financial factors, such as those arising from material
environmental, social and governance (ESG) risks.</p><p>One of the key recommendations
is for trustees and providers to clearly distinguish financial risk factors – which
must be taken account of; and non-financial (ethical) factors – which can be taken
account if certain conditions are met. We will consider afresh whether our current
legislation is clear enough in light of the report.</p><p>However, we also wish to
address some of the behavioural biases that may exist in the industry, such as the
assumption that social motivation and good investment returns are not compatible.</p><p>In
line with the protocol agreed by the Lord Chancellor with the Law Commission, we aim
to provide an interim response to both the 5 recommendations and the 11 options for
reform by December 2017. We will respond in full within one year of publication, by
June 2018.</p>
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