what the pensions disclosure regulation means for companiesAugust 1999
The UK government’s new disclosure regulation requiring occupational pension schemes to declare their policy on ethical investment will affect companies in two ways.
First, occupational scheme members should be made aware in a year or so of the fact that their pension scheme either does, or does not, have a policy on these issues. This will prompt some members to consider the issue: as many as 75 per cent of members may want their scheme to have an ethical investment policy, according to the latest survey. Meanwhile, the Ethical Investment Research Service, among others, is starting a campaign to raise awareness of ethical investment among occupational scheme members.
It is clearly counterproductive, in terms of policy and public relations, for a company working hard to develop social, ethical and environmental policies to contribute to an occupational scheme which takes no account of at least some of these issues.
Second, some fund managers are likely to start asking companies more frequent and more detailed questions about their social, environmental and ethical policies. It is difficult to see how a company cannot respond in detail if a large investor starts asking questions about its environmental or social record. For that reason, the regulation will test companies as much as pension funds; it will cause companies to improve their monitoring and reporting systems for social, environmental and ethical issues. In the short term, trustees will consult lawyers, a few ethical additional voluntary contribution schemes will be introduced to gauge interest among occupational members, and fund managers will develop engagement strategies to help allay trustee fears over fiduciary responsibility. In the longer term, companies will bear the brunt. The pensions minister was careful to point out that trustees are not compelled to have a policy on social, ethical and environmental issues – but his regulation will compel companies further to develop policy in these areas.
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