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Fair Pensions reviews top 30 UK schemes responsible investment policies 07.05.09

Many pensions schemes now throw around words like responsible, ethical, sustainable. But in reality how do they live up to the trendy sales spin? FairPensions, who have been campaigning for real responsibility in pensions funds reviews the top 30 in the UK. Top prize goes unsurprisingly to the Universities Superannuation Scheme and the wooden spoon to Lloyds TSB Group Pension Scheme.

Source: Executive summary of UK Occupational Pension Schemes’ Responsible Investment Performance 2009

"Occupational pension schemes’ valuations may have been severely damaged over the last 12 months by the ongoing financial crisis, but they remain one of the largest and most influential asset owning groups in the UK and of fundamental importance to the economy. At a time when pension schemes and their fund managers face scrutiny over their apparent failure to exercise effective investor due diligence – in particular as owners of major banks and financial institutions at the centre of the current economic crisis – an examination of the responsible investment policy, practice and transparency of the UK’s largest occupational schemes could not be more timely.

Responsible Investment focuses on those environmental, social and governance (“ESG”) issues that can be material to long term shareholder value, and requires these factors to be assessed and integrated into research and investment decisions. It sees active, carefully considered voting of shareholdings, and engagement with companies when issues of concern have been identified, as fundamental to fiduciary duty, rather than optional extras. These matters cannot be addressed effectively by pension schemes without detailed policies, implementation procedures, and performance monitoring, and the schemes can not be held accountable on these matters by their stakeholders without adequate transparency. .Such an approach is integral to maximising long term shareholder value as well as addressing any underlying moral concerns regarding corporate behavior.

In response to the heightened public interest in investor accountability, as well as the growing international consensus on the importance of responsible investment to long term shareholder value, this report examines the depth of commitment to responsible investment amongst leading occupational schemes in the UK.

Key Findings:

Importance of ESG issues: “a truth universally acknowledged” but not universally acted upon: All of the schemes surveyed (with the exception of five schemes for which no data was available), acknowledge in their Statement of Investment Principles the potential importance of ESG factors in the investment process. However, this is often not fully reflected in detailed policy, implementation and performance monitoring. Leaders and laggards

There is a striking disparity between the observable “best” and “worst” schemes. Scores ranged from 100% to 0%, with 12 schemes scoring 50% or more. The British Telecommunications Pension Scheme, Universities Superannuation Scheme and Strathclyde Pension Fund continue to show strong commitment and action on responsible investment. A full “league table” is shown at the beginning of the full report.

Corporate CSR policies not apparently matched by schemes’ Responsible Investment policies.

There are a number of pension funds which, given their sponsoring companies’ public profile on corporate social responsibility, could be expected to have pension schemes that are responsible investment leaders, but in practice appear to fall short of expectations. This Occupational pension schemes’ valuations may have been severely damaged over the last 12 months by the ongoing financial crisis, but they remain one of the largest and most influential asset owning groups in the UK and of fundamental importance to the economy.

At a time when pension schemes and their fund managers are being questioned for their apparent failure to exercise effective investor due diligence, in particular as owners of major banks and financial institutions at the centre of the current economic crisis, an examination of the responsible investment (“RI”) policy, practice and transparency of 30 of the UK’s largest occupational schemes could not be more timely.

In response to this heightened public interest in pension fund accountability, and prompted by the growing consensus on the importance of responsible investment to long term shareholder value , FairPensions’ 2009 Pension Scheme Survey seeks to examine the real depth of commitment to responsible investment amongst leading UK occupational schemes. We have significantly enhanced the scope of our survey since the 2007 report, maintaining a section on transparency, but also now analysing in detail the extent of RI policy and practice.

We have also enlarged the size of the survey,from 20 to 30 of the UK’s largest schemes, comprising £351bn assets under management, with an estimated 4.8 million membership . The schemes’ individual scorecards, together with FairPensions’ recommendations, are detailed in appendix 1 of the full report.

In an industry where the majority of schemes delegate investment of funds to external managers, it is vitally important that schemes provide their fund managers with detailed policies, define their expectations, and scrutinise performance – having assessed a fund manager’s RI capabilities prior to appointment. Our survey’s enhanced scope is also strongly informed by the findings of our recent (November 2008) report on the responsible investment performance of leading fund managers. The latter indicated that with notable exceptions, many of the largest and most influential asset managers operating in the UK cannot yet be judged satisfactory in terms of protecting and enhancing value for clients in relation to ESG factors – the responsibility is on their clients to ensure this happens. For pension schemes, with fiduciary duty lying ultimately with trustees, the onus is on them to ensure fund managers can and do deliver responsible investment."

Download the full report UK Occupational Pension Schemes’ Responsible Investment Performance 2009 (PDF)

Peter Shield

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