Ethical Performance
inside intelligence for responsible business


socially responsible companies need a pension fund to match

February 2000

In recent weeks there have been clear signs that investors are finally waking up to the importance of corporate social, ethical and environmental risks. Two of the three largest UK pension funds have announced that they intend to develop socially responsible investment approaches.

The BT pension fund, the UK’s largest by assets, is altering its statement of investment principles in the belief that the interests of long term shareholders are best served by a company that behaves ethically and with regard to the environment. The Universities Superannuation Scheme, the third biggest, has responded to stakeholder pressure and says it now intends to start evaluating companies in which it holds shares on their social, ethical and environmental performance, and to raise any concerns with the companies.

British Coal’s pension fund, the UK’s second largest, began an environmental assessment of its £22 billion portfolio early last summer, for, it said, financial reasons.

This is surely a defining moment: the UK’s three biggest pension funds are now actively investigating the social, ethical and environmental risks associated with UK equities.

It remains to be seen what these developments mean in practice. It will be interesting to see, for example, how funds measure the success of these policies.

How will companies be affected? First, more investors will now take a far greater interest in the social, ethical and environmental performance of companies – with the emphasis firmly on the associated risks.

Second, any company can now expect to face questions about its pension fund’s policies. If the trustees of the largest pension funds in the country think introducing an element of social responsibility does not necessarily conflict with their fiduciary responsibilities, the argument will go, then what do our trustees propose to do? A socially responsible company may well need to develop a policy for its pension fund that reflects the company’s wider values.

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