Recent government legislation introduced in July 2000 includes a requirement for ALL pension scheme trustees to declare the extent to which ethical considerations are taken into account in the acquisition, retention and realisation of shares. It is also a requirement to declare how voting rights are exercised.
The
law & occupational pension schemes
Under an amendment to the 1995 Pensions Act that came into force
in 2000, the trustees of occupational and local government pension
schemes have to state their policy on socially responsible investment
in their Statement of Investment Principles (SIP). This includes:
• "… the extent (if at all) to which social, environmental
or ethical considerations are taken into account in the selection,
retention and realisation of investments;
• and their policy (if any) directing the exercise of rights
(including voting rights) attaching to investments".
This does not mean that trustees have to take account of social
or environmental concerns within their investment strategies, but
they are obliged to state whether or not they do so.
The impact of this is twofold. On the one hand it has raised awareness
of the implication of ethics among trustees. And on the other hand
it is raising awareness amongst pension scheme members. On discovering
that their pension does not have an ethical policy as stated in
the SIP, many pension fund members have started to lobby trustees.
Is
your pension fund investing ethically?
To find out if your pension has an ethical/socially responsible
investment policy you will need to look at its Statement of Investment
Principles (SIP). Depending on your pension, this may be sent to
you automatically or you may need to request it. You should receive
a mini-report from your pension scheme every year. It should contain
details of how to request a copy of the full annual report. The
SIP is normally contained with this annual report, though it can
be a separate document.
In
practice, although most large pension funds are now opting to have
an ethical, or socially responsible investment (SRI) policy, the
way they approach it varies. The trustees of larger pension funds
tend to ask their fund managers to study the financial implications
of applying ethical, social and environmental criteria across the
whole range of a particular fund. Sometimes they also ask them to
engage, on the trustees' behalf, in dialogue with companies.
We are able to provide advice on various strategies for fulfilling this requirement, in addition to offering an ethical screening service.
1.
Check the current position of your charity
Establish a list of any activities, (arms sales, tobacco production,
for example) that conflict with your charity's objectives. Check
that none of your donations, support and work are being damaged
by current investments. And check your Trust Deed - does it say
anything about socially responsible investment? Existing deeds can
be changed; contact the Charity Commission and seek legal advice
about doing this.
2.
Consider the best ways to build an ethical policy for your charity
You don't have to start with an all-or-nothing policy. It might
be appropriate for your organisation to start with a limited but
well-defined list of objectives from which a policy could be built.
Look at the policies drawn up by similar organisations and establish
what would be best for yours.
3.
Canvass the views of donors, beneficiaries, staff and other stakeholders
Your supporters and beneficiaries are stakeholders. Their views
should be taken into account. Any socially responsible investment
strategy will have to be written down and approved. If you decide
to go ahead, think carefully about whether you have the time and
resources to see it through. You may need a management mechanism,
like a sub-committee, to regularly review the ethical aspects of
your investments.
4.
Seek expert advice on finance, law and management
• Finance. Your existing fund manager may have experience
of socially responsible investment. If not it may be worthwhile
finding one that would be willing to help you put your policy into
effect.
• Law. There are several statutory duties that a charity trustee
must adhere to when investing charitable funds. The Charity Commission
outlines your legal requirements in their pamphlet, CC14 - Investment
of Charitable Funds: Basic Principles. In addition to this it is
important to seek legal advice.
• Management. Your organisation may benefit from help in thinking
through the foundation and scope of your policy and the best way
to practically implement and maintain it.
5.
If you have an existing policy, is it being properly monitored?
It is all very well establishing a socially responsible investment
policy, but it will be rendered useless if information is not kept
up-to-date. And there should be a way of getting information about
the actual performance of companies, other than relying solely on
those companies. Other sources could include official databases,
campaign groups, and independent research bodies like EIRIS.
A SustainAbility/ MORI survey in June 2000 found that nearly two thirds of pension scheme members wanted their trustees to actively apply social, environmental and ethical criteria to their investment decisions. This survey also found that three out of four scheme members want pension fund trustees to use their voting power to encourage greater environmental, social and ethical accountability from the companies in which they hold investments.