Cowan v Scargill [1985] Ch 270 is an English trusts law case, concerning the scope of discretion of trustees to make investments for the benefit of their members.
Some of the obiter dicta in Cowan, however, have been implicitly doubted by Harries v The Church Commissioners for England,[1] which held that trustees are entitled to consider the social and moral interests of the beneficiaries where they relate to the express or implied objects of the trust.
"[2] In 2014, the Law Commission (England and Wales) commented that the case should not be seen as precluding pension trustees from taking account of environmental, social and governance factors when making investments.
The five NCB nominated trustees made a claim in court over the appropriate exercise of the pension fund's powers.
However, it continues by saying: "Trustees cannot be criticised for failing to make a particular investment for social or political reasons, such as in South African stock for example, but may be held liable for investing in assets which yield a poor return or for disinvesting in stock at inappropriate times for non-financial criteria.
"This last sentence must be considered in the light of subsequent passages in the memorandum which indicate that the sale of South African securities by trustees might be justified on the ground of doubts about political stability in South Africa and the long-term financial soundness of its economy, whereas trustees could not properly support motions at a company meeting dealing with pay levels in South Africa, work accidents, pollution control, employment conditions for minorities, military contracting and consumer protection.
The assertion that trustees could not be criticised for failing to make a particular investment for social or political reasons is one that I would not accept in its full width.
If the investment in fact made is equally beneficial to the beneficiaries, then criticism would be difficult to sustain in practice, whatever the position in theory.
Thus where trustees for sale had struck a bargain for the sale of trust property but had not bound themselves by a legally enforceable contract, they were held to be under a duty to consider and explore a better offer that they received, and not to carry through the bargain to which they felt in honour bound: Buttle v Saunders [1950] 2 All ER 193 .
Trustees are not obliged to divest themselves of all their personal beliefs and social and political views in managing the investments of the pension fund.
What trustees are not entitled to do is to subordinate the interests of the beneficiaries to ethical or social demands and thereby deprive the beneficiaries of investment or opportunities they would otherwise have enjoyed.In 2005, authored by Paul Watchman of Freshfields, a report for UNEP suggested that the effects of Cowan had been overstated and that it was no precedent at all for saying ethical considerations could not be taken into account.
Trustees may also take account of non-financial factors, where they have good reason to think that the scheme members share their views and that the decision does not risk significant financial detriment.
[11] In 2016, UNEP FI, the PRI, and The Generation Foundation launched a project to end the debate on whether fiduciary duty is a legitimate barrier to the integration of environmental, social and governance (ESG) issues in investment practice and decision-making.
[13] It also found that ten years after the Freshfields Report, despite significant progress, many investors had yet to fully integrate ESG issues into their investment decision-making processes.
Drawing upon findings from Fiduciary Duty in the 21st Century, the European Commission High-Level Expert Group (HLEG) recommended in its 2018 final report that the EU Commission clarify investor duties to better embrace long-term horizon and sustainability preferences.