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pension funds embrace new regulation

September 2000

The majority of the UK’s largest pension funds have decided to adopt some form of socially responsible investment (SRI) approach now that the government’s pension regulation on SRI has come into force.

Research by Environmental Resource Management (ERM) consultancy has found that 21 of the 25 largest funds by capital value say they intend to include social, environmental or ethical considerations in their annual statement of investment principles.

The regulation, which took effect on 3 July, requires the trustees of occupational pension funds to outline their stance on such matters in their next statement and each year thereafter. If a fund chooses not to take account of such matters, it must declare this in its annual statement.

Eighteen of the funds, which include those run on behalf of BT, the Post Office, British Gas, Lloyds TSB, British Airways, British Steel, GEC, Prudential and ICI, said SRI was likely to be implemented mainly through engagement with companies in which they invest rather than through the use of screening.

ERM, which carried out the research via telephone interviews with senior fund staff at pensions director or manager level, predicted the funds would shortly be ‘placing new demands’ on companies and that pension fund managers ‘will increasingly look for |ompanies whose shareholder value is enhanced or at least protected by good management of environmental and social risks’.

Meanwhile, a separate opinion poll has found that two-thirds of pension scheme members want their trustees to ‘actively apply’ social, ethical and environmental criteria to their investment decisions in the wake of the new regulation.

The MORI poll, commissioned by the SustainAbility consultancy and the Centre for Tomorrow’s Company, a think tank, revealed that three-quarters of respondents wanted their trustees to use their voting rights either ‘a great deal’ or ‘a fair amount’ to put pressure on companies to improve their social, ethical and environmental performance. Only six per cent said they did not want them to apply any pressure, 12 per cent said a little, and seven per cent did not know.

The poll of 417 British workers who belong to company pension schemes also found that 21 per cent of them claimed to be aware of the regulation, and that 63 per cent wanted their trustees to apply social, ethical and environmental criteria to investments either ‘a great deal’ or ‘a fair amount’.

A further 13 per cent said they would like them applied ‘a little’, while only 10 per cent said not at all. The rest said they had no views on the subject.

Mark Goyder, director of the Centre for Tomorrows’ Company, claimed the results showed that UK trustees, who invest more than £800billion (€1.3trillion) and control more than a third of shares on the UK stock market, ‘cannot shrug off the law with meaningless boilerplate statements’. Advice for trustees on how to apply the new regulation is being offered from a number of different quarters. EIRIS has published a guide and The National Association of Pension Funds will shortly do so.




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