Friends of the Earth U.K. survey reveals that over half of the largest pension funds either are not taking steps to implement their social investing policy or they have no social investing policy.
It was a little over a year ago that the U.K.’s Pension Act of 1995 was amended to require trustees of occupational pension funds to disclose to the extent to which social, environmental or ethical considerations are considered in the fund’s investments. A recent survey by Friends of the Earth U.K. (FOE) found, however, most pension funds are not actively implementing and monitoring socially responsible investing policies.
"The good news is that most pension funds in the top 100 have investment strategies that include social, environmental and ethical considerations," said Simon McRae, Investment Campaigner at Friends of the Earth. "The bad news is that most don’t have the systems or resources in place to ensure that their fine words are actually carried out in practice."
FOE says surveys consistently show that approximately three-quarters of U.K pension holders would like their pensions to be used to influence corporate social responsibility. To determine if pension funds are responding to this demand by their members and beneficiaries, it conducted a survey of the largest 100 pension funds in terms of asset size.
The survey asked pension fund trustees to send FOE their Statement of Investment Principles (SIP). All funds were contacted at least four times regarding the SIPs. Of the 100 funds, 68 responded in some form, 13 refused to send their SIPs, and 19 did not reply at all.
FOE notes that they are aware that the National Association of Pension Funds wrote to all their members requesting that they not respond the survey, and acknowledges this may have affected the response rate.
FOE received a variety of information, and eventually chose to assess each fund based on three issues: the extent to which environmental, social and ethical considerations are taken into account in making investments, the extent to which trustees or fund managers exercise shareowner rights such as proxy voting and dialogue with companies, and the mechanism established to monitor implementation.
Of the 68 SIPs that FOE received, 59 had some reference to corporate social responsibility or ethics. However, almost half of the funds either fully delegate social investing implementation to pension managers without issuing meaningful guidelines, or they have a poor company engagement or monitoring policy.
The Guardian Royal Exchange Insurance Fund’s SIP, for example, gives full responsibility to the fund manager for implementing social investing sight unseen: "The Trustee’s policy is that the extent to which social, environmental and ethical considerations are taken into account in these [investment] decisions is left to the discretion of the active investment managers."
FOE was especially harsh on SIPs that mentioned socially responsible investing but did not have any substance. "One of the most meaningless statements on SRI was from Unilever who instructed fund managers to take into account social, environmental and ethical considerations ‘ to the extent that they are relevant to future investment prospects.’"
The survey found that municipal pensions generally had taken the most steps to adopt social investing principles. FOE attributes this partly to local authorities being accountable through the election process, and thus tend to be more responsive to fund beneficiaries and local communities.
Funds that either refused to cooperate or did not respond at all were predominantly corporations, and included well-known names such as Ford Motor Company, Barclays Bank and Rolls Royce.
The report concludes by listing five areas where pension funds must improve if they are to meet member and beneficiary interest in social investing. These areas include better implementation of shareowner rights, clearer policies on dialogue with companies, full disclosure of trustee policies regarding social investing, more resources for researching, monitoring and engagement, and the establishment of an ongoing process by which members can ensure the fund reflects their interests and needs.
Social investing is continuously developing and FOE acknowledges that some of the funds may have updated their policies since the survey. However, many funds’ cursory treatment of socially responsible investing should serve as an alert to members and beneficiaries interested in aligning their pension money with their values.