12 No. 67 JUSTICE stock before considering the road ahead, as well as the lessons that may feed into a future legislative response. Beneficiary Preferences For trustees of private sector occupational pension schemes, and for local government pension scheme (LGPS) authorities,3 the threshold question is whether an investment decision taken in the pursuit of beneficiaries’ objectives involves matters that are financially material to that decision. The decision-making process should always incorporate any matters which the trustee has concluded — or, if it has properly discharged its duties and obligations, ought to have concluded — are financially material. In contrast, where the matters are not financially material, the scope for trustees to take account of them is more limited. In the absence of an explicit mandate, the trustee must overcome a two-part test. The Law Commission Report entitled “Fiduciary Duties of Investment Intermediaries”4 expressed it thus: “In general, non-financial factors may only be taken into account if two tests are met: (1) trustees should have good reason to think that scheme members would share the concern; and (2) the decision should not involve a risk of significant financial detriment to the fund.”5 The first limb of the test is often assumed by BDSsupporting trustees to be a low bar in circumstances where they have ESG policies that have been disclosed to beneficiaries. Often, however, this assumption is misplaced. Unless the policy is explicit and detailed on this topic, it is doubtful whether a fiduciary could make the jump and conclude that beneficiaries share its views on BDS, simply based on ESG policies that are often “high level and unilluminating.”6 Such interpretative gymnastics would indicate a desire to stretch the limits of what is rational or logical, perhaps in order for a trustee to apply the trust property to make its own moral statement.7 A legal challenge to those trustees making such a jump is surely only a matter of time. Tobacco, for example, illustrates this point. In the world of socially responsible investment, a tobacco company, for obvious reasons, is often excluded from investment portfolios.Yet if a tobacco company repurposes one of its research and development subsidiaries for COVID-19 research,8 beneficiaries are more inclined to adjust their thinking, at least relative to other tobacco companies. Those boycotting the tobacco company are immediately schooled in how things are rarely black and white. In the circumstances of the Israeli-Palestinian dispute, where the underlying factual and legal matrix is so complex that politics tends to fill the inevitable knowledge gap, the situation does not lend itself to a consensus in the way that pollution or pay-day lending might. The divisive nature of the Israeli-Palestinian dispute is an unconvincing candidate for any consensus between beneficiaries. Where the issue is whether to support a highly political and partisan policy, the possibility of a consensus is surely further reduced. When it involves a person’s nest egg, that consensus is even more remote. Even if there appears to be a consensus, a trustee will be at risk of personal liability if it wilfully turns a blind eye to obvious red flags indicating that it has, in fact, been manufactured. On the subject of extracting beneficiary preferences, albeit nominally on questions of sustainability, the Principles for Responsible Investment (PRI)9 has recommended that fiduciaries 3. LGPS authorities are not strictly trustees but have been described as “quasi-trustees” with similar duties to trustees: R (Palestine Solidarity Campaign Ltd) v. Secretary of State [2020] UKSC 16 at [12], [30] and [42]. 4. Law Commission, “Fiduciary Duties of Investment Intermediaries,” 2014 (Law Com No 350), available at http://www.lawcom.gov.uk/app/uploads/2015/03/lc350_ fiduciary_duties.pdf 5. Ibid., para. 6.34. 6. Guy Opperman MP’s forward to the DWP Consultation on the“Consideration of social risks and opportunities by occupational pension schemes,” March 24, 2021, available at https://www.gov.uk/government/ consultations/consideration-of-social-risks-andopportunities-by-occupational-pension-schemes/ consideration-of-social-risks-and-opportunities-byoccupational-pension-schemes#fn:15 7. Trustees must not use property held by them for investment purposes as a means of making moral statements: Harries v. Church Commissioners [1992] 1 WLR 1241. The judicial direction of travel appears to be to imply a test of rationality. See, for example, Braganza v. BP Shipping Ltd [2015] UKSC 17, albeit that was a case which involved a contract rather than a trust arrangement. 8. See British AmericanTobacco,“BAT working on potential COVID-19 vaccine through US bio-tech subsidiary,”Apr. 1, 2020, available at https://www.bat.com/group/sites/ UK__9D9KCY.nsf/vwPagesWebLive/DOBN8QNL# . It is somewhat unfortunate that the name is abbreviated to “BAT” given the presumed origin of COVID-19, but the point still stands. 9. Principles for Responsible Investment, the leading proponent of responsible investment, which boasts not one but two UN bodies as partners.
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