Pension funds 'must raise game' over ethical investments

Pension fund trustees must dramatically ‘‘raise their game’’ if they are to meet investor concerns about ethical investment, according to a report published today.

A survey of the country’s top 100 occupational pension funds found that while most included socially responsible investment in their strategy, many still put few obligations on managers to engage actively with firms to ensure ethical standards.

Researchers from Friends Of The Earth found that most funds still have no means for monitoring whether trustees and managers are meeting their stated ethical policies.

Simon McRae, Investment Campaigner at Friends Of The Earth, commented: ‘‘The good news is that most pension funds in the top 100 have investment strategies that include social, environmental and ethical considerations.

‘‘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.

‘‘Polls show that nearly three quarters of UK pension holders want their pensions to be used to help corporations to be socially responsible.

‘‘Most people do not want their security in retirement to be achieved at other people’s expense.

‘‘The pensions industry cannot afford to ignore this consumer demand. But our survey shows that funds still need to raise their game if they are to keep the customers satisfied.’’

The survey is being published a year after the amendment to the Pension Act, which required trustees of occupational schemes to disclose through their Statement of Investment Principles (SIPS) the extent to which social, environment or ethical considerations are taken into account in investment decisions.

The funds with the best record on ethical investment include major investors such as British Telecommunications PLC pension fund, and the University Superannuation Scheme Ltd (the first and third largest funds in the country in terms of capital value).

However local authority funds including East Riding of Yorkshire fund, Merseyside Pension Fund, and Nottinghamshire County Council fund dominate the top group.

The worst performers include the Pilkington PLC pension fund, Marks and Spencer plc pension fund and the Rover Group Ltd pension fund who failed to adopt any ethical investment principles.

A number of large funds, predominately corporations, either refused to co-operate with the survey or did not respond including the Ford Motor Company, Sainsbury, Barclays Bank, Abbey National and Rolls Royce.

FoE wants all pension funds to introduce:

:: Better implementation mechanisms, including the use of appropriate sanctions, to ensure that ethical objectives are actually put into effect.

:: More explicit policies on engagement with companies in which the fund invests to ensure they are able to maximise their influence over corporate behaviour.

:: Better disclosure of trustees policies on socially responsible investment.

:: Significantly more resources for research, monitoring and engagement.

:: Establish ongoing consultation processes with members to ensure their needs are reflected by the fund.