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pension funds embrace SRI regulation

November 2000

More than half of the largest UK pension funds have asked their fund managers to take ethical investment considerations into account when investing money, according to a new survey.

The study, carried out by the UK Social Investment Forum, requested copies of statements of investment principles from 508 funds – including the largest occupational pension funds – and all local authority funds.

Of these funds, 171 sent back their statements which were then analysed.

The study found that 101 (59 per cent) of the 171 funds with collective assets of £302billion have asked their fund managers to consider the financial impact of socially responsible investment (SRI) in the wake of a new pensions regulation that requires fund trustees to disclose the extent to which social, environmental or ethical considerations will be taken into account in investment decisions.

These funds represent 69 per cent of the assets of those responding to the survey.

The study of this newly required statement of investment principles found that only 24 respondents (14 per cent) said social and ethical concerns would not be taken into account in investment decisions. The remaining 27 per cent of funds said they would leave the decision to their fund managers.

Penny Shepherd, executive director of the forum, said the findings would increase pressure on companies to become more socially responsible – and might surprise many fund managers. ‘As a whole the fund management industry is only just starting to look at this issue,’ she said. ‘This could significantly change the degree to which fund managers take into account social and ethical considerations in the future.’

Shepherd added that while some funds would already have had an SRI commitment in their statements of investment principles before the regulation came into force, it would be safe to assume that many had mentioned SRI only as a result of the regulation.

The survey found that larger pension funds were more likely to take SRI considerations into account than smaller ones, and that 71 per cent of local authority pension funds mentioned ‘engagement’ in their statements, compared with only 23 per cent of company pension funds.

Shepherd said this was partly because company pension funds ‘tend to delegate implementation of any SRI policy to their fund manager, whereas local authorities tend to retain ownership of their SRI policy and favour engagement, not necessarily via the fund manager’.

Eugenie Mathieu of Imperial College, who carried out the research for UKSIF, said: ‘The 34 per cent response rate to the survey demonstrates an impressive openness and transparency by major occupational pension funds, and a recognition of the growing importance of corporate social responsibility issues.’

UKSIF says the survey is the most comprehensive review to date of how pension funds have responded to the new regulation.

Pension funds in the UK control around £850bn of investment and own roughly 35 per cent of shares on the London Stock Exchange.




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