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UKSIF & Just Pensions Response to Socially Responsible Investment (SRI) Proposals in "Private Action, Public Benefit"

UK Social Investment Forum Response to Consultation Documents on Recommendations in the Myners' Report

UKSIF submission: April, 2002

 

Introduction

The UK Social Investment Forum (UKSIF) is the UK's membership network for stakeholders in socially responsible investment (SRI). UKSIF's 250+ members and affiliates include institutional investors, pension schemes, investment consultants, trade unions, NGOs and individuals interested in promoting SRI. UKSIF also provides the secretariat to the All-Party Parliamentary Group on Socially Responsible Investment. Further details about our aims, activities and membership can be found on our website at www.uksif.org.

UKSIF is grateful for the opportunity to respond to this consultation, and our response is informed by consultations with representatives from our diverse membership base.

UKSIF's Response

Pension scheme trustees being "familiar with the issues concerned":

UKSIF welcomes initiatives that lead to pension scheme trustees being sufficiently familiar with the issues concerned, and would expect to see corporate governance and social, environmental and ethical (SEE) issues explicitly mentioned in any non-statutory guidance or legislation in this area. Mismanagement of these issues by companies in which pension schemes invest can reduce long-term shareholder returns (as highlighted by the publication of ABI guidelines relating to these issues last autumn).

However, UKSIF would be concerned if calls for greater familiarity reduced the role and/or number of member-nominated trustees (MNTs). MNTs can play a key role in increasing the responsiveness of pension schemes to the concerns of members and beneficiaries.

Encouraging shareholder activism:

UKSIF welcomes initiatives that encourage appropriate and effective shareholder activism, and would again expect to see corporate governance and SEE issues explicitly mentioned in any non-statutory guidance or legislation in this area. Examples of effective SRI engagement could even be used to highlight best practice.

Greater disclosure about the nature, amount and effectiveness of activism undertaken by fund managers, and the prioritisation process used by them (or the trustees), would also be welcomed. Disclosure should be sufficiently timely and accessible to trustees, members and beneficiaries. We would also welcome appropriate shareholder activism and disclosure across all managed funds.

In addition, we would welcome the availability of options within all defined contribution pension schemes that allow members to more closely match their values to their investments. For example, some members may prefer a screened SRI approach and/or a fund manager with a very active and responsible shareholding approach across their whole portfolio of investments.

Helen Wildsmith
Executive Director
UK Social Investment Forum
 

See also:

• Previous Myners submission, May 2001
• Evidence to the Myners Review, July 2000

[ About UKSIF ]

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Response to Consultation Document on Recommendations in the Myners' Report

Response Submitted by Just Pensions

April 2002

 

Encouraging Shareholder Activism
 

1. Just Pensions is a consortium established in 2000 by the development charities War on Want and Traidcraft Exchange. The consortium receives support from the Community Fund. Drawing on the expertise of an advisory group comprising major SRI practitioners and other specialists, and building upon our organisations' campaigning experience we launched a handbook for pension fund professionals in May 2001 (copy enclosed). 15,000 copies of the handbook have now been circulated and we have engaged in a series of bilateral and multilateral meetings with individual pensions funds, investment houses and trustees. The objective of our work is to encourage investors to engage with the companies in which they invest with specific reference to how the work of the companies may impact upon efforts to relieve global poverty.
    
2. Further Context. In the Government's Globalisation White Paper (December 2000) specific reference is made to the role of the amendment to the 1995 Pensions Act in promoting socially responsible investment and consequently assisting the achievement of the 2015 millennium goals.
    
3. Just Pensions shares the concerns of the Myners Report and the Government. We recognise absolutely "the broader culture of non-intervention" and welcome proposals to change this. We believe that non-intervention is damaging to the interests of the members and beneficiaries of schemes, particularly in a longer term and global context.
    
4. Therefore we welcome the proposed duty as worded in paragraph 26 of the consultation document. However we are concerned that with this wording trustees and fund managers can still take a very narrow and short-term view of "the best interests of the members and beneficiaries." Such short termism will not bring about the necessary changes in activist patterns which the government is seeking. In order to encourage longer term thinking we propose that an additional sentence be added to the duty "In assessing the best interests of the beneficiaries, explicit consideration should be given to their needs, in retirement, including their need to live in a sustainable society."

Answer to Question 1

5. Just Pensions agrees with the government that the new duty should apply both to trustees and to fund managers. Trustees should be obliged to make available to members an annual report on their shareholder activism policies and activities. Where trustees have delegated these responsibilities to fund managers the trustees should require an annual report on the implementation of the policies.

Answer to Question 2

6. Just Pensions welcomes the proposal that any breach of the new statutory duty should be the subject of civil proceedings. Just Pensions believes that the new statutory duty should be applied to all fund management including non-pension fund management. The objective of the proposal, to improve corporate governance, will be undermined if large sectors of the investment industry are excluded from this statutory responsibility.

Answer to Question 3

7. The consultation document is right to identify the nature of these reports as crucial to the success of the new duty. Research currently being conducted by Just Pensions staff shows that many of the commitments to social responsibility made by funds following the requirement to declare their policies in their SIPs, are not being implemented in practice. This exposes trustees and fund managers to accusations of bad faith or negligence. It is imperative that the reports given annually by fund managers (or the relevant body if the duty is delegated) give numerical detail on the methods of engagement adopted.
    
8. For example fund managers should state whether engagement is by questionnaire, letter or meeting; how many meetings were held on which issues; why those issues were chosen and prioritised; how many AGMs were attended and how many votes were cast in person and by proxy. Fund Managers should declare to trustees when they have been the subject of a lobby from NGOs and other civil society groups with respect to one or more of their shareholdings. On receiving these reports trustees should have the right to request background information and to discuss with the fund managers their priorities for engagement in the forthcoming period. A summary of the policies, priorities and activities should be made available to scheme members to ensure compliance with the new duty.
    
9. As well as reporting to trustees of pension funds currently under management, the government should establish clear guidelines for fund managers to disclose in their annual report their track record on shareholder activism in the terms set out in paragraph 7. The provision of such transparent comparable information will assist trustees in fund manager selection processes.
    
10. Just Pensions welcomes the proposal that any breach of the new statutory duty should be the subject of civil proceedings.
     
11. Just Pensions welcomes this government initiative and would be pleased to provide further background if required.

For more information about this submission please contact:

Rob Cartridge
Just Pensions
37-39 Great Guildford Street
London SE1 0ES

April 2002

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Response of the UK Social Investment Forum to FSA CP121: Reforming Polarisation: Making the Market Work for Consumers

Institutional Investors Aberdeen Asset Management AEGON Asset Management Axa Sun Life Investment Management Baillie Gifford & Co (Af) CCLA Investment Management Charities Aid Foundation Co-operative Insurance Society Dresdner RCM Global Investors (UK) Ecclesiastical Insurance Group Epworth Investment Management Family Assurance Friendly Society Friends Provident Life & Pensions Friends, Ivory & Sime Gerrard Henderson Global Investors Hermes Investment Management (Af) Impax Group INVESCO Asset Management (Af) JP Morgan Fleming Asset Management (Af) Jupiter Asset Management Morley Fund Management Nikko Global Asset Management (UK) NPI Investment Managers Pavilion Asset Management Prudential-Bache QUADRIS Environmental Investments Rathbones RC Brown Investment Management Rockefeller & Co Royal & Sun Alliance Investment Mgt Royal London Asset Management Schroder Investment Mgt (UK) (Af) Scottish Widows Investment Partnership SG Asset Management Singer & Friedlander Investment Mgt Skandia Group Standard Life Assurance Company Storebrand Luxembourg Thesis Asset Management Universities Superannuation Scheme World Wide Fund for Nature (WWF-UK) Zurich Scudder Investments

Independent Financial Advisers Banner Financial Services Barchester Green Investment Bowden Independent Financial Management Bromige & Partners CCF Financial Services Crowe Money Advice Derek Vivian Ethical Financial Ethical Investment Association (EIA) Ethical Investments Ethical Investors Group Ethical Money Ethikos Independent Financial Advisers Fair Investment Company Global & Ethical Investment Advice (GÆIA) Holden Meehan Investing Ethically Kingswood Consultants Lifestyle Financial Services Martin Briggs Massow Rainbow Group Ronald Blue & Co UK Social Investment Advisers Stephen Walters Swan Independent Financial Advice The Ethical Investment Co-operative The Ethical Partnership The Helm Godfrey Partnership Towers of Taunton

Response to European Parliament Draft Report on the EC's Green Paper on CSR

UKSIF submission: Mar 20, 2002

 

To:
Richard Howitt MEP
Rapporteur on the Green Paper on Corporate Social Responsibility
Member of the Employment and Social Affairs Committee
13G246, Rue Wiertz
Brussels B1047
Belgium

I am writing on behalf of the UK Social Investment Forum (UKSIF) in response to the European Parliament's Draft Report on the European Commission's Green Paper on Promoting a European Framework for Corporate Social Responsibility (CSR).

UKSIF are grateful for the opportunity to respond to the draft report and very much welcome the European Parliament's work in this arena. Our comments specifically address items 4, 5, 6, 7, 8, 10, 14, 16 and 20.

• 4. UKSIF welcomes the European Parliament's call on the Commission to require enterprises to undertake annual social and environmental reports by the end of 2003 in accordance with economic, environmental and social standards identified by the Global Reporting Initiative (GRI). Whilst we are wholly supportive of this measure for larger companies, we understand that there are concerns among smaller companies about their ability to report to GRI guidelines. However, we understand the GRI is drafting reporting guidelines for SME's which should address these concerns.
   
• 5 & 10. UKSIF supports the European Parliament's calls for the Commission to include requirements for external verification of company annual social and environmental reports.
   
  UKSIF urge the Parliament and Commission to ensure that verification by one body only, such as the EU CSR Platform, does not inhibit development and innovation within CSR verification. Furthermore, we are concerned that verification by the registration body (see point 9) may undermine credibility and present conflicts of interests.
   
  At a practical level we feel the breadth of competencies required to verify all such reports may be inhibiting for one organisation and that the CSR Platform may find it difficult to find consensus over verification standards (although the GRI is looking into this area).
   
• 6. UKSIF supports the European Parliament's calls for the Commission "to explore the possibility of producing an 'access to information' Directive in relation to corporate activities and to investigate within the limits of its own competencies and those of the Member States, how far information about companies' social and environmental performance already held by regulatory authorities could be better collated and published".
   
• 7. UKSIF welcomes calls from the European Parliament to the Commission to bring forward legislation requiring pension funds to state their ethical criteria in their investment policies.
   
  We encourage the Parliament to expand the wording from 'ethical' to 'environmental, social and ethical'.
   
  Furthermore, in order to encourage shareholders to recognise the responsibilities of share ownership, we would recommend that funds disclose their policies relating to the exercise of the rights (including voting rights) attaching to investments, as well as their investment policies.
   
  We also encourage the Parliament to recommend that the regulation be applied to all pooled investment vehicles and that the disclosures are communicated to scheme members and policy holders.
   
• 8 & 14. UKSIF urge the European Parliament to include representative(s) from socially responsible investment on the Board of the proposed EU Multi-Stakeholder CSR Platform to ensure that investors interested in social, ethical and environmental matters are represented. This will become increasingly important as European legislation relating to investments (point 7) is enacted.
   
• 16. UKSIF welcomes the Parliament's call for a Board level champion for CSR within companies; and its call for the Commission to "explore other changes to corporate governance rules at the European level to promote stakeholder dialogue and the rights of minority shareholders".
   
• 20. UKSIF encourage the European Parliament to expand its calls on the Commission "to support and assist corporate watch groups and civil society initiatives" to include support for socially responsible investment. We urge the European Parliament to encourage the Commission to actively support the development of national multi-stakeholder social investment fora and the European Sustainable and Responsible Investment Forum (Eurosif).

UK Social Investment Forum

The UK Social Investment Forum is the UK's membership network of stakeholders in socially responsible investment. Our 250+ members include providers of ethical and socially responsible investment funds, other financial institutions, socially responsible investment research consultancies and independent financial advisers. This response has been developed based on the Forum's mission to support and encourage the development and positive impact of socially responsible investment. It does not, of course, necessarily reflect the views of every Forum member.

Yours sincerely

Helen Wildsmith
Executive Director
UK Social Investment Forum
 

See also:

• Promoting a European Framework for Corporate Social Responsibility - Repsonse to EC Green Paper, Dec 2001

[ About UKSIF ]

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Making Socially Responsible Investment (SRI) Work for the Poor

Paper for UK Department for International Development

 

Background

DFID's Private Sector Policy Department is undertaking some preliminary work on SRI. As part of that work, it needs a clear picture of the current state of knowledge of the links between capital flows, SRI and poverty reduction in developing countries. SRI is used in the sense of positive engagement and positive screening, e.g. through investment in best in class companies. For the purposes of this paper, it does not include negative screening.

This paper is a contribution to assembling such an overview. It sets out the kinds of issues that need to be addressed in answering the central question: 'How can the SRI trend be made to work most effectively to achieve poverty reduction in developing countries?' Just Pensions is publishing this edited version of the paper, with DFID's permission, as a contribution to the wider SRI debate. 

How this paper was written

This paper was commissioned following two discussions between Just Pensions and DFID's Private Sector Policy Department. Besides drawing on its own resources [1], Just Pensions interviewed the following individuals:

Academics

Valpy Fitzgerald, Queen Elizabeth House, Oxford
Stephany Griffith-Jones and Jenny Kimmis, IDS

Fund Managers

Craig Mackenzie, Friends Ivory and Sime
Rob Lake and Mark Campanale, Henderson Global Investors

Others

Mike Tyrrell, HSBC
Sophia Tickell, Oxfam

Email comments on the first draft were also received from John Humphrey, IDS; Stephanie Barrientos, IDS; Steve Waygood, FIS; George Gelber, CAFOD; Caroline Harper, Save the Children.

Section I: Capital Markets and Poverty

The link between capital flows and poverty reduction is complex, and varies between different kinds of capital flow. Understanding these links is a vital first step to situating DFID's work on SRI within the wider poverty reduction effort. The questions that need to be answered include:

a) How do international capital flows reach the poor?

Private capital flows from developed to developing countries through a number of channels:

• FDI
• Equity investment in UK/other OECD-based companies undertaking FDI in, or sourcing goods from developing countries
• Equity investment in developing country companies (via emerging market funds, dealing on emerging market stock exchanges or buying shares in large developing country companies listed on northern stock markets)
• Purchases of bonds issued by developing country governments or companies
• Northern bank loans to developing country companies and banks
• Northern bank loans to developing country governments and Central Banks
• Targeted pro-poor investment by schemes such as Shared Interest and Triodos Bank
• Property purchases in developing countries 

What is the volume of capital flowing to developing countries via each of these channels? Here, it is essential that DFID clearly establishes its focus from the outset - is it principally interested in low income countries, or middle income countries with sizeable poor populations? If the former, then FDI and trade is likely to be more important than portfolio investment, which seldom reaches low income countries [2]. If the latter, then in key emerging markets such as China and Brazil a wider range of channels becomes relevant.

In terms of SRI, a low-income country focus is likely to suggest concentration on areas such as the conduct of companies sourcing from poor countries (for example via the Ethical Trading Initiative), or how to ensure FDI is long term and pro-poor (for example via the OECD guidelines on Multinational Corporations). If the focus is on middle income countries, additional issues would include how to design incentives to stimulate interest in bond issues to finance infrastructure, bank lending to SMEs etc, or even simply to increase the volume of such flows.

b) What are the sectoral origins of capital flows to developing countries?

• What are the origins of private capital flows (pension funds, insurance companies, banks, mutuals, individual investors, company treasuries etc) from the UK to developing countries?
• Which of the channels identified in Question (a) do they use?

c) What is the link between the different channels of capital flow and poverty reduction?

Although unequivocal answers to this question are likely to be elusive, it is clearly important to have thought through quality as well as quantity aspects of capital inflows. Some are bound to be more efficient in reducing poverty than others in terms of volatility or direct impact on the poor. For example, long term FDI in labour intensive industries is likely to be more poverty reducing than volatile short term bank to bank lending.

Section II: How do Capital Markets work?

a) Who are the key decision makers in investment chains?

For each of the channels identified above

• Map the investment decision chain (e.g. for a pension fund: policy holder - trustee - scheme administrator - fund manager - investment consultant - financial analyst - investee company).
• Identify the most influential links in those decision chains in determining the final destination of the investment.

Section III: Mapping the SRI Environment

a) Existing Voluntary SRI initiatives

• What initiatives to promote SRI are currently under way in the UK, including within Whitehall, industry associations, trades unions and development and environment NGOs. How far have they got in terms of measuring quality of engagement and establishing best practice?
• Which initiatives have a clear international poverty focus? How might other initiatives be encouraged to incorporate a clearer pro-poor agenda (e.g. FTSE4good, London Principles)?
• What initiatives have been the most effective in increasing SRI investment's leverage, for example on investee companies?
• What initiatives exist in other OECD countries, especially those with capital markets similar to that of the UK?
• What initiatives exist in developing countries?
• What international SRI networks exist at a business, civil society or governmental level?
• What surveys of business leaders have been carried out to establish the main drivers and barriers to progress on SRI?
• Of the decision makers identified in section II, which are currently the main drivers of SRI within the investment chain? Which links are currently the main obstacles to progress on SRI?

b) Emerging best practice in SRI

• For each of the channels and sources of capital identified in section one, what, if any, is the current extent of SRI? Identify the pace of change and the likely directions of SRI in this sector.
• To what extent, if any, do risk analysts incorporate social risks into their company analyses?
• What work has been done on the sectoral materiality/significance of social risks linked to international development issues?
• What SRI benchmarks currently exist or are under development? How credible are they in terms of development issues?
• Do current incentive structures encourage or discourage investment managers from taking SRI criteria into account? How could they be influenced/tilted towards a more proactive SRI stance?
• What lessons can be learned from similar work aimed at improving the poverty impact of investment in the UK? (e.g. community finance)
• Summarise the best existing case studies of SRI engagement by particular investors or on particular issues. What evidence is there of their poverty impact?

Section IV: SRI and Development

To what extent does the SRI movement explicitly address poverty reduction as an SRI issue?

• What are the main international development issues raised by SRI managers?
• Based on the previous sections, do current SRI practices direct investment towards, or away from, pro-poor channels of investment?

Section V: The Role of Government

a) How can government encourage pro-poor SRI?

• For each of the sources and channels of capital identified above, what forms of legislation in OECD countries have been passed to encourage SRI practices? How do they compare with UK legislation for that source/channel? What has been their impact?
• What other forms of regulation (e.g. stock market listings, fiscal incentive schemes, changes to financial reporting standards) have been proposed by governments, multilateral institutions, industry associations or investors to encourage SRI in OECD countries?
• Which new legislation or regulation (UK, EU or OECD) is currently under consideration that could offer opportunities for influencing and encouraging SRI? (e.g. Companies Act, EU CSR Green Paper)
• In the case of UK pension funds, what has been the impact of the amendment to the Pensions Act in terms of quantity and quality of pension fund-based SRI?
• Is there a clear legal consensus on the legal status of SRI in terms of the fiduciary duties of Pension Fund trustees? What is the most authoritative legal interpretation?
• What opportunities are there for increasing public awareness of SRI, e.g. via development education, guidelines for trustees, working with business schools?
• How can government ensure that poverty reduction and human development are given an appropriate weighting by the SRI movement?
• What experience is there of governments supporting international development capacity building in financial institutions?

Duncan Green
Just Pensions
January 2002
 

Notes:

1. This paper involved input from Duncan Green and David Coles, Just Pensions; Michael Gidney and Fiona Gooch, Traidcraft Exchange; Rob Cartridge, War on Want [context]
    
2. S Griffith-Jones and J Leape, Capital Flows to developing countries: does the emperor have clothes? (mimeo, not yet published, January 2002) [context]

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