Majority of funds ignoring socially responsible investment, according to private sector report
Two years after occupational pension funds became required to disclose their policies on socially responsible investment, a majority are still failing to consider social, ethical and environmental issues as part of their investment process, according to a private sector report.
The Pensions Act was amended in July 2000 to force occupational pension funds to disclose the extent to which they take SRI issues into account when making investment decisions.
But despite growing interest in the sector and the creation or expansion of SRI desks at many fund management houses, the bulk of pension funds are lax in their approach, according to a study from charity-sponsored lobby group Just Pensions.
The report, by former KPMG partner David Coles and Just Pensions coordinator Duncan Green, said many funds have changed their statements of investment principle to include social and environmental issues but few have taken any real action towards enacting the policies. Most pension funds have failed to invest in staff, training or research required to implement stated SRI policies and most funds delegating SRI decisions to external fund managers have no means of assessing or rewarding their performance.
Socially responsible investing has attracted attention in recent years with claims that increased awareness of environmental and similar issues can increase and defend returns.
Some fund management groups believe companies involved in environmentally damaging projects, unacceptable work practices or political impropriety can see their bottom line and share price eroded. The report argues that pension funds unaware of SRI issues could leave themselves exposed to companies that may be courting investor disapproval.
While the most exposed pensions are those that ignore the relevance of SRI to investment decisions altogether, even those that commit to SRI principles are often at risk because they lack the capacity to implement them.
However, UK ethical unit trusts have performed broadly in line with the rest of the market over the past three years, fielding results in the top and bottom half of the league table in equal measure. Thus there is evidence that the additional risk perceived by the report's authors impacts on performance.
The reluctance or inability of pension funds to monitor their investment managers on SRI grounds puts the reputations of the employing company and the individual trustees at risk, and could ramp the case for regulatory action, the study concludes.
Just Pensions is a consortium established by the development charities War on Want and Traidcraft Exchange.
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