Ethical Performance
inside intelligence for responsible business


pension fund’s U-turn could herald new era

February 2000

A decision by the UK’s third largest pension fund to invest more ethically has provided one of the strongest signs yet that many other funds could be ready to adopt a socially responsible investment approach.

The Liverpool-based Universities Superannuation Scheme (USS), which manages assets of nearly £20 billion, has said it will appoint extra staff – possibly two – at its London investment office specifically to develop socially responsible investment policies.

The USS decision came as the BT pension fund, the largest in the country, announced that its statement of investment principles would be altered this year to say that its principal investment manager, Hermes, must recognise that a company run in the long term interests of shareholders will need to behave ethically and to have regard to the environment as a whole.

The BT pension fund is currently worth £26 billion.

The USS decision, announced at its annual meeting, follows many years of campaigning by the 3500-member organization Ethics for USS. The fund has 153,000 members, most of whom are lecturers and university staff.

Until the meeting, USS had publicly refused to countenance a change in its investment policy. But it acknowledged the impetus given to its decision by the UK’s new pension regulation, which from July will require funds to state their position on ethical investment.

USS has also promised to increase transparency by publishing details on its web site ( of all 2000 companies in which it holds shares. Previously it had publicised only 100 holdings.

Sir Graeme Davis, chairman of USS, said the fund had decided on a policy of ‘more active engagement’ with companies to ‘strengthen its stance on socially responsible investment policies’.

‘Today no properly run public company – or fund manager – should be unaware of the importance of public opinion and ethical issues,’ he said. ‘They ignore the subject at their peril.’

Sir Graeme said the engagement policy would involve identifying companies it invests in ‘which are following policies that do not meet best practice on social, environmental or ethical issues’. The managers would then make representations to those companies to ask for policy changes ‘and monitor the results of that policy’. The policy would initially concentrate on FTSE 100 companies and would become part of regular annual discussions held with more than 1500 companies about their overall performance, he added.

Legal obligations prevented the fund from investing wholly or primarily on ethical or environmental considerations, Sir Graeme claimed.

Jess Worth, spokesperson for Ethics for USS, said: ‘The new regulation has changed the whole climate in which these decisions are being made.’

Penny Shepherd of the UK Social Investment Forum said: ‘This is an extremely significant development because USS is such a large pension fund and its decision may well influence others. The key thing now is what sort of engagement process they follow and how they measure the success of what they do.’

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