The Guardian: The good, the bad … and the secretive

EXTRACTS: The Royal Mail scheme’s top 30 shareholdings include a number of companies that have been criticised by environmental and human rights groups. They include… BP and Shell… criticised by environmentalists for looking for more oil and gas while boasting of their commitment to renewable energy.

The BBC’s pension scheme, with almost 60,000 members, did not fare brilliantly on transparency either …the scheme’s biggest shareholdings include much-criticised companies such as BP and Shell…

THE ARTICLE

Funds criticised for staying silent on environmental and social impact of investments

Simon Birch
Saturday November 25, 2006

Most of Britain’s biggest occupational pension schemes are keeping their members in the dark about the environmental and social impact of their investments, according to research published this weekend.

The campaigning organisation FairPensions says these schemes are not doing enough to tell members which companies their money is supporting, and to what extent environmental and human rights concerns are taken into account when deciding where to invest people’s cash.

This lack of transparency means a supporter of Amnesty International may unwittingly be backing business ventures in states with oppressive regimes, or someone who regularly donates to Friends of the Earth could discover they have effectively been supporting an oil company’s climate change denial policy, it says.

For example, the Royal Mail’s £21.9bn pension scored just 14% when the researchers at FairPensions looked at how much information Britain’s 20 biggest pension funds disclose about how cash is invested. The Royal Mail scheme’s top 30 shareholdings include a number of companies that have been criticised by environmental and human rights groups. They include British mining giant Anglo-American, at the centre of pollution allegations relating to a gold mine in Ghana that is run by a subsidiary of the company; Nestlé, which has faced boycotts over issues from animal testing to the marketing of baby milk substitutes; Total, described by campaigners as one of the main supporters of the Burmese military regime; drugs firm Novartis, which is taking legal action in India to enforce a patent for a cancer drug which could save many lives if it were available at generic prices; and BP and Shell, which have been criticised by environmentalists for looking for more oil and gas while boasting of their commitment to renewable energy.

The BBC’s pension scheme, with almost 60,000 members, did not fare brilliantly on transparency either, scoring 21%. However, it recently signed up to the United Nations’ “principles for responsible investment”. Nevertheless, the scheme’s biggest shareholdings include much-criticised companies such as BP and Shell, mining company Rio Tinto, and several banks.

The two schemes that did best in the transparency survey were the £28bn Universities Superannuation Scheme (USS) and BT’s £34bn fund, with scores of 79% and 71% respectively. By contrast, four schemes – including those run for employees of Barclays, HSBC and Royal Bank of Scotland – scored zero.

“Generally the picture is poor,” says Alex van der Velden, chief executive of FairPensions, which was launched last year by a coalition including Amnesty and Oxfam, and is calling for schemes to engage with companies in building their portfolio and disclose information to members.

“With assets of £720bn, the UK pension fund industry in effect owns almost 20% of the UK’s public companies and has great power to influence boardroom policies on environmental, social and governance issues. Currently though, this power is being used to tacitly support companies which have received widespread criticism for their environmental and human rights records,” he adds.

The 20 schemes analysed represent the pension interests of nearly 4 million people and are together worth £250bn. FairPensions assessed how much information they disclosed about where their members’ money is invested and how it is managed, and then rated this against industry standards of best practice.

The process of communicating to pension fund members about the management of their pension is known as disclosure and transparency. The other key principle of responsible investment is “engagement”, where investors in a company, such as a pension fund, aim to improve that company’s performance through dialogue and voting at a company’s AGM.

“Out of the 20 funds that we surveyed, not one met the industry standard for best practice for disclosure and transparency,” says van der Velden.

Just one scheme, BT, provides its members with any information about votes on company policy that have been cast on their behalf. In addition, only five funds – British Coal, BT, Greater Manchester Pension Fund, the USS and West Yorkshire Pension Fund – disclosed their policy on engaging with companies in their portfolio on environmental, social and governance issues.

“For many people their pension is the single biggest investment they will have,” says van der Velden. “They deserve to have information about how that investment is being used.”

While pension funds are under no legal obligation to implement responsible investment policies, there is now a growing argument for this to help ensure the financial security of a pension fund.

David Russell, senior advisor in the responsible investment team at the USS, the main pension scheme for employees of universities and other higher education and research institutions, says environmental and other concerns “should not be seen as purely ethical or moral issues as they impact upon investments”.

One of the most important matters that the USS is now addressing is climate change. “As the Stern report indicated, climate change has the potential to impact upon the global economic performance over the long-term. As a pension fund, we need to be aware of the long-term as this is the timeframe over which we will be paying out our pensions,” adds Russell.

The USS is also a shareholder in the pharmaceutical company GlaxoSmithKline and has successfully engaged with the company to slash the cost of many drugs, including HIV treatments in developing countries.

With little sign of government action, FairPensions believes the only way we will see movement on responsible investment is for pressure to be applied by fund members. “If people are concerned about these issues, then they should start questioning their pension fund,” says van der Velden. “Ask them to make available its policy on engaging with companies as well as making available details of how they voted at AGMs in the past year.”

The National Association of Pension Funds denies that its members are failing to implement responsible investment policies. “Responsible investment is now a mainstream issue for pension funds. Pension fund trustees expect their fund managers to engage with companies and to hold their managers to account,” it says.

However, FairPensions says many fund managers say privately that very little engagement is occurring because of a lack of interest by pension fund clients and a lack of financial incentives to make it happen.

Ultimately, van der Velden believes pension funds are strategically placed to tackle a range of corporate malpractices. “Pension funds are major institutional shareholders and as such have a direct line of influence right into the boardrooms of huge corporations in a way that other forms of campaigns don’t.”

http://money.guardian.co.uk/occupationalpensions/story/0,,1956187,00.html