Establishing the Legal Obligations of Pension Fund Trustees to Divest from Climate-Unfriendly Portfolios

Abstract

Pension funds invest in all sorts of profitable activities, including fossil fuels, but the failure of pension fund trustees to consider and manage risks that climate change poses to their investment portfolios could be in breach of their ‘fiduciary duties’ under Trust Law in common law jurisdictions. A 2014 Law Commission report, ‘Fiduciary Duties and Investment Intermediaries’, concluded that many pension fund trustees had misconceptions about their fiduciary duties and the extent to which the law allowed them to factor environmental, social and governance issues into their investment decisions. This paper will examine, with case law, relevant legal principles from trust deed, the common law duties and statutory provisions, which can be used to initiate lawsuits against trustees investing in climate-unfriendly businesses. With a pension law reform recently introduced by Whitehall, it will also provide a new perspective on the climate change litigation risk facing English pension fund trustees in an evolving legal environment.