From an individual perspective, pensions are promises. Promises of dignity in old age, of rewards deferred, of stability earned over time. From a systemic perspective, however, pensions are systems engineers.

Standing at the junction of what is and what will be – set the money aside now to live a good life in the future – pensions effectively enable economic systems to perpetuate themselves. Through investments, they silently design our future or, more often than not, prolong our past decisions.

In this context, fiduciary duties – the legal obligations imposed on pension trustees – can be seen as an enabler of systemic change. A concept designed to protect pension beneficiaries which is at the centre of the current tension in the pension world, and many trustees are asking: how far can pensioners’ best interests be informed by sustainability factors?

The truth is that fiduciary duty is flexible enough to adapt to changing economic circumstances especially when the pensioners’ interests are no longer served by the system in place. In other words, law is part of the solution, not the problem.

What fiduciary duties do (and don’t) say
In legal terms, fiduciary duties are common sense. Across most western legal systems, they can be summarised under an umbrella duty that requires trustees to act in good faith for the “best interests” of the trust’s beneficiaries.

The emphasis on the best interests of pensioners is crucial. It ensures that pension trustees, on whose shoulders the fiduciary duty rests, exercise their powers to invest the trust money only for the beneficiaries’ benefit and no one else’s. In other words, trustees cannot use their investment powers to advance their own interests, nor those of the sponsoring employer or the government in office. Their focus is much narrower – current pensioners and pensioners-to-be.

Like the fiduciary duty itself, the concept of best interests is highly flexible. It has evolved over centuries through legal interpretation, in line with the mainstream economic system, emphasising the primacy of financial interests above everything else.

However, the law clearly says best interests, not financial interests. The financial add-on has only been a predominant interpretation of the principle. And this interpretation is now being expanded.

Climate impacts future living standards
Today, sustainability considerations have entered the pension investment world, triggering a debate on whether they fall under the financial interpretation of the beneficiaries’ best interests.

With Australia leading the way in integrating sustainability factors into trustees’ fiduciary duty and the US backlash against the concept following the recent political swing, in the UK a decades-long debate seems to be reaching its conclusion.

In 2025 as part of the ongoing reforms to the UK pension schemes bill, responsible investment group ShareAction proposed to clarify that under their fiduciary duty, pension trustees can explicitly consider sustainability and systemic risks in their investment decisions. A soft recommendation rather than black-letter law, the call nevertheless does not stand alone.

It is further supported by a March 2025 legal opinion arguing that UK pension trustees can take into account pensioners’ standard of living in retirement – which will be impacted by climate resilience – as a financial factor when making investment decisions.

A simple argument underpinning these narratives goes something like this: since sustainability risks have financial implications, fiduciary duty already requires trustees to consider them in advancing the best interests of pensioners even under its current interpretation. No legal change is needed.

Misguided calls? When law is not the problem
For a pension trustee, the situation remains uncertain with many asking lawmakers for clarification.

This is a valid position given that the current language surrounding sustainability considerations – “should”, “can” and “could” – is not authoritative. Any lawyer would say it is a language of permission, not of duty. And permission is discretionary in nature.

So would it make any practical difference if pension trustees had a legal duty, rather than a permission, to consider sustainability factors in their investment decisions? Indeed, a legal opinion in June 2025 argues that all investment fiduciaries, including pension trustees, already have such a duty given the recent findings on the financial and economic impacts of climate change and nature loss. Yet lessons learned from similar efforts related to directors’ duties, established almost two decades ago, suggest that the law is indeed neither the problem nor the answer.

Very much like pension trustees, directors owe fiduciary and directors’ duties to the company’s shareholders. Historically, these duties were interpreted under a chiefly financial model: companies operated to increase financial returns for shareholders.

In 2006, the UK Companies Act introduced a new approach and company directors are now required by law to run the company for the benefit of its shareholders and, at the same time, consider the interests of the other stakeholders, including the environment. An ambitious legal step, yet has it really brought about the desired legal certainty?

Almost 20 years on, the debate on the relative weight directors need to give to stakeholder considerations is ongoing. Legal opinions still need to be published to clarify that stakeholder interests do have financial impacts and cases are still being brought in attempts to get an authoritative pronouncement on these issues. The legislative change has not delivered the clarity sought.

Serving ‘best interests’ in a system designed to fail
So, if law is not the problem, what is?

The economic system.

The financial success of pension funds relies on several macroeconomic factors: healthy functioning markets, steady economic growth and a stable financial system to name a few. As long as the economic system supports them, beneficiaries’ best interests align with the interests of the system. For many years, this has been a hallmark of pension logic which has directed pension investments into high carbon-emitting industries.

Now the economic system is in crisis. From a long-term perspective, it has been built on unsustainable foundations; a belief in infinite growth, overexploitation of often non-renewable natural resources and exploitative labour practices. For decades, these have been borne by the planetary system and its people, and they are now crumbling. This is not a symptom of legal uncertainty – it is a consequence of a system design. It was meant to happen.

Against this background, the chaos that sustainability factors have caused in the pension investment world is not surprising. They have exposed the chronic weaknesses of our economic system – increasingly frequent extreme weather events, the consequences of which are becoming uninsurable, and collapsing ecosystems overexploited through unsustainable practices – that were conveniently externalised before.

And now pension trustees are being asked to internalise those weaknesses in their investment decisions. There is only one conclusion pension trustees can draw here: that their beneficiaries’ best interests can no longer be served by a system designed to destroy the very foundations on which it is based, and the very value it has created.

Ultimately, when faced with a self-destructive economic system, no investment allocation within that system can lead to financial returns. In such a system, investments will only prolong its final gasp, but they will not prevent its collapse.

Faced with this realisation, a simple question follows – what’s next? What comes after the collapse? In the absence of a system-wide coordinated transition, legal uncertainty becomes a catch-all to justify our collective inaction. Do pension trustees, and in fact all fiduciaries, have to factor sustainability considerations into their decisions or not? We stall in the past because we cannot imagine our shared future.

It does not have to be that way. By virtue of the sheer volume of the assets under their management – more than £3tn in 2024 according to some sources – UK pension trustees, along with insurers and other institutional investors, engineer the very system they need to serve the best interests of their beneficiaries.

When these can no longer be served by the current economic system, they will be served by a new emerging system. Some are already taking the first step towards this new system, such as the University of Aberdeen’s policy to invest its portfolios “according to the highest ESG standards“.

This is the direction of travel for pension trusts’ investments: aligned with trustees’ fiduciary duty, the ongoing systemic transition to a new economy and the overall health of the ecological system that supports all life, including human economic life, on this planet.

Read More: @Greencentralbanking