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new pensions regulation boosts ethical investors

August 1999

Pensions experts are predicting a surge in ethical investment and corporate responsibility measures in the wake of a new government regulation that will require pension scheme trustees to state their policy on socially responsible investment.

Commentators from many quarters claim the regulation, put before parliament on 1 July, removes the last doubts about whether pension schemes can invest ethically – and will greatly assist trustees who want to bring socially responsible criteria to bear. But they also argue it will force more companies to examine their ethical performance.

Chris Walker, a director of Hill Samuel, said the regulation was ‘dynamite’ and would have ‘massive implications for UK pension schemes as well as the companies they invest in’.

Penny Shepherd, executive director of the UK Social Investment Forum claimed the establishment of the regulation was ‘a historic moment’ which represented ‘the coming of age’ for socially responsible investment and which over time ‘should lead to a major increase in ethical investment by occupational pension funds’.

The regulation gives occupational pension schemes until 3 July next year to state their policy, if any, on social, environmental and ethical investment matters.

The regulation states that among the ‘matters on which trustees must state their policy in their statement of investment principles are...the extent to which social, environmental or ethical considerations are taken into account in the selection, retention and realisation of investments’.

An additional clause also requires them to state their policy on voting rights.

The regulation has been widely welcomed, even by the National Association of Pension Funds NAPF, which had initially opposed it. Although NAPF claims the regulation is ‘purely a matter of disclosure and is not intended to promote a change in investment policy,’ pensions minister Stephen Timms said it was designed to ‘help stimulate debate on social responsibility’ and corporate governance.

Karen Eldridge, head of client services at the Ethical Investment Research Service (EIRIS), argued the move would undoubtedly lead to more ethical investment.

‘For too long trustees have been unsure as to whether they can implement ethical investment strategies, but this regulation will greatly encourage those trustees who want to respond positively to members’ requests for an ethical policy for their pension scheme,’ she said.

A mirror regulation covering local authority pension funds will be put before parliament later this year by local government minister Hilary Armstrong. Consultation on its wording will be carried out over the next few weeks.

West Lothian council has decided not to close its account with the Bank of Scotland now that the bank has publicly apologised for its involvement with the US TV evangelist Pat Robertson.

However, the Transport & General Workers Union has decided not to renew a credit card deal with the bank when it expires in June 2000.




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