Pension funds fiduciary duty and climate change
PhD student: Mrs X. Du
Promotors: Prof M.G. Faure, R. Bauer
Duration: 1/9/2017 - 31/5/2020
In the past, it has been widely agreed that the fiduciary duties of investment for pension fund are to manage their funds for the best interests of the individual beneficiaries or investors. As a result, financial interests have typically considered as the best interests. Meanwhile, it was carefully cautioned against engaging in socially responsible investing (SRI) because it would bring a financial cost to the portfolio which would reduce owners best interests. Nowadays, an increasing interest of pension funds in considering environmental, social or governance (ESG) criteria with traditional financial information in their investment processes has been shown. The reason for this phenomenon is due to the crisis and challenges from global climate change. Paris Agreement and the objective of limiting warming to well below 2 degrees Celsius which puts the international community firmly onto a low-carbon, non-fossil fuel pathway for the future. This makes the value of fossil fuels highly susceptible to significant losses in value in the years ahead. Consequently, continued investment of members money in fossil fuel extraction and related activities is risky and looks set to become ever more so. It is readily apparent that such investors have the potential to greatly influence the environmental performance of the companies in which they invest. Their enormous investor power has the ability to ensure not only economic stability but also stable environmental, social and corporate governance conditions in those global economies. As a consequence, this stability allows these economies to flourish, which leads to healthy financial returns for pension funds. The problem of fiduciary duties for pension fund in SRI or ESG investments is, in practice, pension fund trustees and managers are often excessively focused on maximizing short-term returns. Courts, commentators and trustees have interpreted prudent investment as conventional investment. The reason for this situation is the uncertainty surrounding pension fund fiduciary duty and environmental considerations, in particular climate change, still not be clarified through legislation. Without this clarification, pension fund trustees will have all the impetus they need to shy away from changes they were already reluctant to make. My research will focus on how to deal with this situation. My research question will be: 1. Analysis why should pension funds fiduciary duty consider climate change issue. 2. Analysis what shall be the efficient method or model for pension funds fiduciary duty to contain environmental responsibility theoretically. 3. Using this efficient method or model as a bench mark, to evaluating EU and Chinese fiduciary duty in the pension fund system. By achieving this goal, my methodology will use: 1. Comparative legal analysis in EU and China for the case study. 2. Law and economics analysis for the method or model. 3. Empirical study. The structure of this thesis will follow the research question mentioned above. First part will mainly focus on reviewing of the exist pension fund system to determine what is the definition of fiduciary duty in the traditional legal regulation and why its function is not enough for todays society under the situation which climate change-related damages have large influence on the economic field. In the second part, by using the law and economic analysis, hopefully an efficient method or model will be designed to solve the problems which are: whether legislations will be founded or market can allocate and adjust by itself.; how to find a balance between investors financial interest and environmental sustainable development and so on. The third part will be, by using the method or model, to evaluating the EU and Chinese pension fund system to get a conclusion. Following an initial inquiry about the term of a full-time PhD research, my research is expected to be completed within four years. At the first year, I will study law and economic course, collect EU and Chinese cases and legislations, read relevant literature, and hopefully can finish my draft for the first part of my thesis. At the second year, after studying law and economic course and other economic theories, my goal is to design an efficient method or model as the main outcome for the whole research. Third year, I will try to compare with EU and Chinese pension funds investment pattern and use my model to evaluate them. The last year will be the year of arrangement and reexamination for my research.