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Welcome to the inaugural issue of the UK Social Investment Forum’s new quarterly update for pension funds and their advisers. It is produced as part of UKSIF’s Sustainable Pensions Project which assists occupational pension funds to adopt more responsible and sustainable investment strategies (more details below).
This inaugural issue gives you a summary of the key developments in responsible and sustainable pension investment in 2006 so far. We have also included summaries of what we believe are the three most significant resources in recent years for pension fund trustees considering responsible investment. We hope this update will be useful - not only to read now but as a reference for the future. Subsequent issues will be shorter –a maximum of two pages with a digest of new developments over the previous quarter.
Pension Funds and Responsible Investment
– Top Three Key Resources – |
UNEP-FI and Freshfields: Important legal research on fiduciary duty and extra financial issues.
Freshfields Bruckhaus Deringer, one of the world's largest law firms, produced a report in 2005 for the United Nations Environmental Program Finance Initiative (UNEP FI). Its in-depth analysis concludes that institutional investors such as pension funds are not only legally permitted to integrate environmental, social and governance (ESG) issues into their investment decision-making and ownership practices, but could be breaching their fiduciary duties if they fail to take into account ESG considerations which can have an impact on the financial performance of an investment - reviewing and refuting the long-term misinterpretation of the Megarry judgment in the Scargill case. The report is at www.unepfi.org.
Climate change and trustees’ fiduciary duty guide produced by Mercer Investment Consulting.
The Institutional Investors Group on Climate Change (IIGCC) and The Carbon Trust commissioned Mercer to produce a guide for pension trustees on climate change and their fiduciary duties. The guide, 'A climate for change: a trustee’s guide to understanding and addressing climate risk’ states that the economic impact of climate change is a fiduciary issue. It was published in 2005 and is available online at carbontrust.co.uk/Publications/publicationdetail.htm?productid=CTC509&metaNoCache1 www.carbontrust.co.uk/Publications/publicationdetail.htm?productid=CTC509&metaNoCache=1.
The UN Principles of Responsible Investment (PRI).
The United Nations Secretary-General launched the "Principles for Responsible Investment" in April 2006. At launch, it was backed by a group of over 70 investors with more than USD 4 trillion in assets under management. New signatories are still being added. There are six overarching principles, underpinned by a set of 25 possible actions that institutional investors can take to integrate environmental, social and governance (ESG) considerations into their investment activity and thereby improve long-term returns to beneficiaries. Details at www.unpri.org
| Pension Funds and Responsible Investment |
UK PENSIONS
BBC Pension Fund signs UN Principles for Responsible Investment (PRI).
The BBC Pension Trust Ltd recently became the fourth UK asset owner signatory of the PRI. Visit www.unpri.org.
NAPF survey finds funds have raised their engagement game.
Pension Schemes are taking their responsibilities as shareholders more seriously than ever, the National Association of Pension Funds (NAPF) has said. Its second pension fund engagement survey showed 90% of 41 large occupational schemes responding know the content of the Institutional Shareholders’ Committee’s statement of principles, which outlines how investors should fulfil their responsibilities. See www.napf.co.uk
LAPFF seeks to make shareholder engagement effective.
The Local Authority Pension Fund Forum (LAPFF) has said that the takeover of shareholder activism by fund managers without critical oversight by their pension fund clients should stop. To that effect, it launched a new report “Shareholder Engagement: Holding Fund Managers to Account". The report contains a LAPFF Trustee Guide which encourages pension schemes to conduct a dialogue with their fund managers on how effective their engagement activities are in bringing about change at companies and creating value in the long-term. See www.lapfforum.org
TUC survey of pension funds on voting disclosure shows large support.
The Trades Union Congress (TUC) has announced the results of its first ever survey of pension funds on voting disclosure. It showed that 93% of members of the TUC’s Member Trustee Network, which governs pension funds worth over £300 billion, think fund managers should publicly disclose how they vote in company AGMs. Visit www.tuc.org.uk.
USS to take on US media giant Viacom on excessive executive compensation.
Press reports claim that the Universities Superannuation Scheme (USS) is set to take on US media giant Viacom in a class action law suite. According to “Global Pensions" and others, the UK’s second largest fund has joined forces with the Mississippi Public Employees’ Retirement System to become named plaintiffs in the action against the Viacom board of directors for excessive executive compensation. See www.globalpensions.com.
LAPFF schemes quiz firms on women’s pay.
The Local Authority Pension Fund Forum (LAPFF) has written to all companies in the FTSE 350 index enquiring about equal pay for women. The group representing UK pension funds with assets in total of £60bn (€89bn) wants to make this issue part of its engagement process with companies in which their members hold stock. See www.lapfforum.org.
Environment Agency PF recommends adopting DEFRA’s Guidance on Environmental Reporting.
The Environment Agency Pension Fund has written to its investment managers requesting that they adopt DEFRA’s Guidance on Company Environmental Reporting and KPIs and that they encourage companies to adopt and use the best practice guidelines. Contact howard.pearce@environment-agency.gov.uk.
Environment Agency Pension Fund appoints SWIP to emerging markets mandate.
The Environment Agency has appointed Scottish Widows to manage a £50 million active emerging markets equity portfolio. SWIP will be assisted by Trucost and Global Ethical Standards in implementing the Fund’s Environmental Overlay and Corporate Governance strategies. Visit www.environment-agency.gov.uk.
INTERNATIONAL PENSIONS
FRR awards €600m SRI mandates.
The €26.6bn Fonds de Réserve pour les Retraites (FRR - the French Pensions Reserve Fund) has awarded five asset managers a total of €600m in socially responsible investing mandates. Listed in alphabetical order, they are AGF Asset Management, Dexia Asset Management, Morley Fund Management, Pictet Asset Management & Sarasin Expertise Asset Management. See www.fondsdereserve.fr.
PGGM and ABP invest in climate change fund.
Dutch Pension funds giants ABP and PGGM have taken stakes in the world’s largest private sector carbon fund, Climate Change Capital (CCC)’s Carbon II fund. The fund will invest in projects in developing countries aiming to reduce greenhouse gas emissions. ABP confirmed it had invested €275m in the fund. CCC stated that the profile of the investors backing this new asset class reflected the progress in the development of the carbon market created by the Kyoto protocol." See www.climatechangecapital.com.
TIAA-CREF puts $100m into microfinance.
The American $380bn educational retirement savings group TIAA-CREF has earmarked $100m to invest in microfinance initiatives through its new Global Microfinance Investment Program (GMIP). The program is part of TIAA-CREF's new Social and Community Investing Department, which develops new socially oriented products, oversees the screening methodology of social screened funds, formulates policies around key social issues and manages community investment programs. See www.tiaa-cref.org.
ERAFP – The New French civil service additional pension scheme invites SRI tenders for €1.5 billion.
ERAPF (Establissement de retraite additionnelle de la function publique) has announced that it will invest the overall assets of its initial fund according to SRI criteria. Asset managers will have to demonstrate an ability to combine transparency with performance and compliance with SRI principles. The funds has committed to long-term engagement as a shareholder and to make annual report of its SRI activities. Visit www.erafp.fr.
CalSTRS adds screen for 20 socio/geopolitical risk factors for all investments held in the portfolio.
The board of the US $142bn California State Teachers’ Retirement System (CalSTRS) has adopted a new investment policy. This outlines a process for engagement with companies where 20 socio/geopolitical risk factors affect the value of the investment. According to CalSTRS, that process will include directly engaging companies that violated those policies to seek a change in corporate behaviours and, failing that, the fund would “direct its managers to seek suitable alternative investment opportunities in the affected sectors consistent with CalSTRS fiduciary duties". See www.calsters.com.
Norwegian Government Pension Fund excludes Wal-Mart and Freeport from its investments.
The Norwegian Ministry of Finance has excluded Wal-Mart and Freeport from the Norwegian Government Pension Fund’s investment universe, in line with the recommendations from the Council of Ethics for the Fund. Wal-Mart was excluded because of alleged serious and systemic human rights violations. Freeport was excluded because of alleged environmental violations. The Fund has so far excluded 17 companies. Visit www.etikkradet.no.
CalPERS bans Sudan-linked companies.
The board at the $210bn California Public Employees' Retirement System (CalPERS) has banned investments in nine companies that do business in Sudan and called on other companies to severe ties with the genocide-linked country. Visit www.calpers.ca.gov.
Academic study on CalPERS Finds Institutional Activism improves shareholder value.
The study by Professor Barber at the University of California at Davis estimated that CalPERS’ shareholder activism has resulted in total wealth creation of $3.1 billion for investors while expanding shareholder rights between 1992 and 2005. Visit www.gsm.ucdavis.edu.
COLLABORATIVE INITIATIVES BY PENSION FUNDS
Big UK Schemes in climate change pleas.
Some of the UK’s largest pension institutions, including Hermes, USS and the London Pension Fund Authority (LPFA) have banded together to encourage companies and governments to cut global carbon emissions by signing the statement on global warming sponsored by the Institutional Investors Group on Climate Change (IIGCC). The institutional investors will use their collective financial weight to pressurize companies and governments into reducing greenhouse gas emissions, as any investment decisions taken now will have a major impact on the world’s climate. See www.iigcc.org.
Investors press SEC on climate risk disclosure.
A group of 28 institutional investors have asked the US Securities and Exchange Commission (SEC) to require publicly-traded companies to disclose financial risks from global warming. The funds, which manage more than $1 trillion is assets are part of the Investor Network on Climate Risk (INCR). See www.incr.com.
Investor group unveils risk-disclosure guidelines.
A coalition of 14 major institutional investors and other organizations that represent trillions of dollars in combined assets have published a climate risk-disclosure framework to help companies determine what information they should provide to investors on the financial risks posed by global warming. See www.ceres.org/pub/docs/Framework.pdf.
CONSULTANTS
Watson Wyatt calls on pension funds to exploit their size to improve market performance.
Watson Wyatt has published reports on Engagement and Voting which encourage investors to use their size and influence to improve equity markets’ performance. It is part of a broader research initiative into sustainability in institutional investment and the impact ESG issues have on long-term investment. Visit www.watsonwyatt.com.
Mercer Investment Consulting introduces quarterly global review on Responsible Investment.
The first edition of Mercer’s 'Responsible Investment Update’ has been published. Visit www.merceric.com/ri.
OTHERS
UNEP-FI launches “Show Me the Money - Linking Environmental, Social and Governance Issues to Company Value".
The report examines the growing importance of sustainability criteria in the international finance sector and highlights the impact of environmental and social factors on enterprise value. See www.unepfi.org.
IFC awards Grant to study Environmental and Social Data for Emerging Market Equity Investors.
The International Finance Corporation, the private sector arm of the World Bank, has awarded a $500,000 grant to the winners of its research competition “Capturing Value." The grant went to CRISIL, Standard & Poor’s and KLD; and to Trucost and CLSA. The competition aimed to provide investors in emerging market equities with better research on companies’ environmental, social, and corporate governance performance and facilitate high-quality, long-term investment in emerging markets from pension funds and other investors worldwide. See www.ifc.org.
Carbon Disclosure Project 4 report launched.
The fourth global Carbon Disclosure Project report (CDP4), with $31.5 trillion in assets behind it, was launched at an event in New York in September. CDP4 generated the highest-ever corporate response rate, with 72% of FT500 companies responding - up from 47% in the first survey. Visit www.cdproject.net.
The Carbon Trust launches a new quarterly newsletter for institutional investors.
The newsletter draws together all of the Carbon Trust’s activities on climate change that may be of interest to institutional investors – from the valuation implications of climate change and the EU Emissions Trading Scheme (EU ETS), through to developments in low carbon technologies and renewables. Visit www.carbontrust.co.uk.
FairPensions issues Responsible Investment guide for pension fund trustees.
'Responsible Investment Best Practice Guide’ has been produced for pension fund trustees. It explains why FairPensions belives that Responsible Investment (RI) has become a fiduciary duty and condenses a variety of sources from legal and industry bodies and the Myners Principles into a two-page guide. It also presents FairPensions’ recommended basic steps for best practice in RI. Visit www.fairpensions.org.uk.
EIRIS launches country sustainability ratings service for sovereign fixed income securities.
Country Sustainability Ratings, a new product from the Ethical Investment Research Service (EIRIS), provides analysis on 64 countries on a number of ESG criteria including equality indices, corruption perception and convention ratification and can provide bespoke ratings for an investor. Visit www.eiris.org.
Al Gore launches film on climate change.
'An Inconvenient Truth’ sets out former US Vice President Al Gore’s argument that we can no longer afford to ignore global warming either as a political issue or as a moral challenge. Visit An Inconvenient Truth.
Government Pensions Reform White Paper includes SRI Options.
'Security in retirement: towards a new pensions system’ set out the government’s proposed reform package for pensions. It stated that the government intended to provide socially responsible investment (SRI) options within the range of investment options available under personal accounts. UKSIF responded to the White Paper consultation welcoming this move. The Government will publish a further White Paper in December specifically on personal accounts. See www.dwp.gov.uk. For details of UKSIF’s response, contact anne.desgagniers@uksif.org.
Belgian funds 'forced into SRI investing’.
Public authorities in Brussels must invest “at least" 10% of their pension schemes in socially responsible investment under new orders approved by government. See www.ipe.com/article_default.asp?article=21039.
UKSIF is grateful for financial support from Esmée Fairbairn Foundation for the Sustainable Pensions Project.
| The UKSIF Sustainable Pensions Project |
UKSIF encourages pension funds to adopt responsible investment.
The UK Social Investment Forum (UKSIF), as part of its mandate to promote sustainable and responsible investment, launched a two year programme in Spring 2006 to encourage corporate and local authority pension funds to adopt and benefit from responsible investment (RI). The Sustainable Pensions Project encourages pension schemes of companies which are leading the way on corporate social responsibility (CSR) to consider also environmental and social issues in their pension fund investment decisions. For more details, see www.uksif.org.
UKSIF partners with UNEP FI to research Pension Fund Best Practice in Responsible Investment.
As part of the Sustainable Pensions Project, UKSIF is working with the UN Environment Programme Finance Initiative (UNEP FI) Asset Management Working Group (AMWG) to research Best Practice in Responsible Investment by leading pension funds around the world. The report will be published in early 2007. Details from anne.desgagniers@uksif.org
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