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pension funds keep their SRI lights under a bushel

November 2007

The pension funds of some of Britain’s most socially responsible companies have been criticized for lacking transparency on their social and environmental stances.

Of 278 funds run on behalf of businesses in the FTSE4Good UK index, more than half refused to participate in a Sustainable Pensions study of their responsible investment practices – the first attempt to gauge the behaviour of the pension funds of some of the UK’s most socially responsible companies. Many of the rest did not respond, and in the end, only 33 funds, or 12 per cent, gave usable information.

A number of funds said they would not take part because they had no formal policy on responsible investment, while others complained of questionnaire fatigue and one said: ‘we are unable to ascertain the trustees’ attitude towards responsible investment.’

The UK Social Investment Forum, which set up the study with FTSE Group, said that the low level of participation ‘raises questions about [the pension funds’] collective commitment to transparency and their willingness to be held to account for their approach ... particularly compared with their plan sponsors’. Pension funds are separate legal entities, but some funds choose to align their investment policies with the values of the company whose employees they serve. Five funds attach ‘great significance’, and a further ten ‘some significance’, to doing this, Uksif found.

Tim Currell, head of corporate governance and sustainable investment at Hewitt Associates, who sits on the Sustainable Pensions advisory board, said the low response rate was probably the most noteworthy finding, especially because the funds were of ‘companies that have proved themselves to be interested in responsible investment issues in their corporate life’. He added that derivatives, funding levels and other complex investment issues were at present occupying trustees’ attention.

Emma Hunt, Mercer’s European head of responsible investment, said the reluctance of so many to participate suggested that only a few UK companies in the FTSE4Good index are trying to exercise any influence over their pension fund’s investment behaviour.

Two-thirds of the funds that did take part said SRI featured in the assessment, appointment, evaluation or remuneration of fund managers. Fewer than half communicated to scheme members how their responsible investment policy is implemented. Pension funds are legally required to declare in their statement of investment principles any SRI policies they may have, but most of the respondents said that they made this information ‘available to members upon request only’.

The best-performing funds were those belonging to BT, Friends Provident and the Stagecoach Group, which were all judged to have a high level of performance on SRI issues.

Uksif recommends companies ‘provide corporate pension fund staff with access to the company’s sustainable development and corporate responsibility expertise and encourage them to use this.’

It intends to repeat the survey at a later date.




Further Information
http://www.uksif.org
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