Spearheading the fight against complacencyJuly 2010
Mike Scott speaks to Catherine Howarth of FairPensions about her organization's ongoing campaign, which calls on institutional investors to place more demands on the companies in which they invest
The pensions industry is complacent, has a laissez-faire attitude to corporate responsibility and does a poor job of representing the interests of its customers, argues Catherine Howarth, chief executive of UK-based FairPensions, the campaign for responsible investment.
'Obviously there are some fantastic examples of good practice in the industry, but historically the sector has done a very poor job of representing and involving those people whose capital they are well paid to look after,' she says.
FairPensions' aim is to make responsible investment a far more democratic operation so that pension fund members have a voice in the process and 'start to understand more and engage more as owners of shares, albeit that major institutional investors are making decisions on their behalf'. It is important, says Howarth, for pension fund members to be engaged as the owners of the shares that pension funds buy, with long-term horizons that are different to those of the industry.
'One of the big themes of the last few years in the pensions industry has been the transfer of risk from the employer to the employee. With the closure of defined benefit schemes, the employee is taking all the investment risk. So this is an issue for all of us in society.'
Howarth's organization is currently best known for its campaign calling on Shell to report on the financial, social and environmental risks associated with tar sands extraction. At the company's recent annual meeting, just under 11 per cent of shareholders supported its resolution. 'We are not expecting a massive vote on the issue, partly because the UK institutional shareholder base is enormously reluctant to support shareholder resolutions,' Howarth said before the meeting, 'but it is a wonderful way for the board to be held to account.'
Since the resolution was filed in December, Shell has been subject to substantial engagement by shareholders 'and has made an effort to explain to shareholders what it is doing and how the environmental and social risks are being addressed. There is a long way to go, but it is a start.'
BP's Gulf of Mexico disaster highlights the financial consequences of Shell's environmental risks. 'Investors cannot be complacent on these issues when they act in a fiduciary capacity for people whose pensions depend on the sustainable performance of the companies they invest in.'
The risks of fiduciary duty have been turned on their head, she says. 'The burden of proof is now shifting. [CSR] issues are highly financially pertinent and it is a breach of fiduciary duty not to give them serious consideration.'
Future work will include research on which types of engagement are most successful and why - and campaigns focusing on water stress and corporate wage inequality. 'Many of our stakeholders are not only appalled by levels of executive remuneration but see it as bad for them as shareholders.'
Ultimately FairPensions, which is funded by grant making bodies such as the Esmee Fairbairn Foundation and the Joseph Rowntree Charitable Trust, wants to educate people about the important role of the capital markets. 'There is great power there and it can be used for good - but it won't happen without people demanding change,' says Howarth.
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