A recent survey finds that pension fund trustees in the United Kingdom view socially responsible investing (SRI) issues as linked to companies’ future financial performance.
In July 2000, an amendment to the United Kingdom Pension Act required all UK occupational pension funds to disclose in their Statement of Investment Principles (SIP) the extent to which ethical, social, and environmental issues affect investment decisions. Now that the amendment has had time to sink in, Just Pensions and the Trades Union Congress (TUC) have released a survey on the attitudes of pension fund trustees toward socially responsible investing (SRI).
Just Pensions is the arm of the UK Social Investment Forum (UKSIF) that promotes SRI by pension funds, and the TUC comprises more than 70 unions representing almost seven million UK workers.
The survey revealed that only one-tenth of these trustees believe that companies are transparent enough on social and environmental issues for proper analysis during the investment decision-making process. The survey also found that pension fund trustees believe that good corporate governance, and other social and environmental issues, will have a substantial impact on the financial performance of companies over the next decade. For many pension schemes, members of the plan elect at least one third of the trustees. The survey comprised responses to questions from 101 such member-nominated trustees (MNTs).
"The results of this survey show that member nominated trustees are already largely convinced that there is a clear financial case for good governance," said Trades Union Congress General Secretary Elect Brendan Barber. "They believe that other factors, like a company’s relations with stakeholders or its employment practices, will over time also have an increasing impact on the bottom line."
More than half of the MNTs (52 percent) believe that "good corporate governance" will have a substantial positive impact on the market value of FTSE 100 companies over the next five to ten years. Nearly a quarter of these trustees (23 percent) feel that "communication and transparency on social and environmental practices" will also have such an impact over the next decade. One-fifth of the respondents (20 percent) think that "effective environmental management" will have a substantial financial impact during this time period.
The survey also considered "quality of consumer relations," "good employee practices," and "respect for local needs in the developing world."
"Interestingly, trustees from the larger funds (£5 billion plus) and those with investment training were more likely to believe the six areas of business performance would have a substantial impact," said AshridgeCentre for Business & Society Associate Director Chris Gribben, one of the lead authors of the report. "This clearly underlines the importance of social and environmental issues and their potential to influence shareholder activism."
The majority of surveyed trustees (85 percent) believe that pension fund activism will result in substantial or some improvements in how companies manage social and environmental impacts and risks.
The pension funds of more than two-thirds (69 percent) of the respondents practice stock selection that takes into account the social, environmental, and ethical issues specified in their SIPs.
While the Pension Act amendment does not mandate SRI practice by pension funds, many observers expected it to spur SRI practice nonetheless, as disclosure often inspires practice. Statistics reveal that this is happening. According to Russell Sparkes in his recent book, Socially Responsible Investment: A Global Revolution, UK pension fund assets invested using SRI strategies increased from £25 billion in 1999 to £80 billion in 2001.
Based on the findings of this survey, readers might expect the amount of pension fund assets committed to socially responsible investment to continue to rise.