Responsible Investment: an Overview

The report, 'Fiduciary responsibility - Legal and practical aspects of integrating environmental, social and governance issues into institutional investment', argues that ESG issues must be embedded in the legal contracts between pension funds and asset managers and ESG issues should be included in reporting by asset managers. Investment consultants and asset managers have a duty to proactively raise ESG issues within their advisory work. This 2009 report is the sequel to the 2005 UNEP FI Asset Management Working Group’s Freshfields Report.

'Responsible Business: Sustainable Pension - How the Pension Funds of the UK's Corporate Responsibility Leaders are approaching responsible investment', considers the responsible investment (RI) practices of the pension funds of UK companies listed in the FTSE4Good UK Index and Carbon Disclosure Project's. The 2009 report shows clear and exciting evidence that a group of RI champions is beginning to emerge among UK corporate pension funds. The 2007 results of the biennial Sustainable Pensions report can be found here. A follow-up survey published in December 2009 found that Local Government Pension Schemes are increasingly implementing responsible investment.

The NAPF Responsible Investment Guidance (PDF 245KB) aims to assist pension funds in developing their policies. It sets out the evolution of the framework to support RI and sets out the roles of pension funds, asset managers and companies. The Guidance is based on two principles. The first is around ESG being integral to good corporate governance. The second is that pension funds should consider the extent to which they wish their managers to take RI into account in implementing policy and reporting on it.

The NAPF’s ‘Stewardship made simple: Practical Steps for Pension Fund Trustees in applying the Stewardship Code’, aims to provide assistance to pension fund trustees in considering how to decide the pension fund's policy on stewardship in light of the UK Stewardship Code and how to implement its chosen policy in accordance with the Code. The guide has been jointly produced with Aviva Investors.

               Fair Pensions’ ‘Protecting Our Best Interests: Rediscovering Fiduciary Duty’ calls for an ‘enlightened fiduciary’ model for institutional investors to parallel the new duties of company directors introduced in 2006. The report argues that such a provision would provide a valuable ‘nudge' towards sustainable, long term investment to overcome narrow interpretations of fiduciary obligation which emphasise profit maximisation at the exclusion of all other factors, including financial system stability.

The National Employment Saving Trust (NEST) announcement of investment approach includes:

1. The second of NEST’s seven published investment beliefs is “as long-term investors, incorporating environmental, social and governance (ESG) factors within the investment process is in the best interests of our members.”

2. NEST will seek to apply responsible investment principles across all the assets in which it invests.

3. NEST will become a signatory to the UN-backed Principles for Responsible Investment and the UK Stewardship Code.

4. The range of five fund choices initially available in addition to the default fund will include the NEST Ethical Fund and the NEST Sharia Fund.

The Responsible Investment Self-Assessment Template (PDF, 429.29 KB) was developed by Mike Taylor, CEO of  London Pension Fund Authority as a tool for local government pensions schemes to take trustees through key RI issues.  The template is published in the UKSIF report  'Local Government Responsible Pension - Assessing Responsible Investment Leadership by Local Government Pension Schemes' (PDF, 2.12MB). The report uses the template and views of key opinion formers to assess the responsible investment performance of local government funds. For a copy of the press release, click here. (PDF, 155 KB).