Net-zero commitments should be considered as an overall objective and should not fetter future investment discretion, according to new guidance designed to help pension trustees understand the legal issues surrounding net-zero targets.

The guidance from Sackers outlines the legal aspects that pension trustees need to think about on their journey to net-zero, including fiduciary duty considerations, emphasising that trustees should retain an ability to determine what is in the best financial interests of their pension scheme.

Sackers partner, Stuart O’Brien, warned that whilst net zero is "fast becoming a 'standard' for trustees", it is not always clear what is meant by such a commitment, nor what trustees should be thinking about when deciding whether to make one.

"It looks great on paper, but what does it mean in reality and what does it actually involve?" he queried. "The legal considerations can be something of a grey area, so trustees need to navigate them carefully."

In light of this, the guidance stated that a net-zero commitment may be adopted by trustees where it is considered to be consistent with the primary purpose of the pension scheme of paying members’ pensions.

It also suggested that trustees may reasonably base their assessment of what a prudent investment strategy for their pension scheme would be on an expectation that governments and policy makers will seek to deliver on their commitments to achieve net zero.

O'Brien continued: "To date, the government has steered away from imposing mandatory net-zero targets on pension schemes, and although the Climate Change Governance and Reporting Regulations require reporting of portfolio emissions they do not currently require a net-zero target.

"However, a number of schemes have made public commitments to net zero and have been openly commended by The Pensions Regulator (TPR) for doing so.”

“Our guide sets out the legal aspects trustees need to think about on their journey to net zero, including the ever-challenging topic of trustee fiduciary duties.

"This is all new and challenging territory for many trustees, but expectations of trustees continue to grow. We hope this guide goes some way to helping inform the steps to get there for those that are starting out on that journey.”

The guidance also includes practical commentary from several industry experts, as well as schemes that have already made net-zero commitments, such as HSBC Bank Pension Trust and TfL Pension Fund.

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