LONDON - Could do better.
Leading U.K. pension plans have been rapped over the knuckles by Friends of the Earth, London, for poor disclosure and implementation of socially responsible investment policies.
Since July 2000, U.K. pension plans have been obliged to publish a Statement of Investment Principles stating the extent to which social, environmental and ethical considerations are taken into account when making investment decisions.
But a survey by Friends of the Earth of the U.K.'s largest plans found that bellwether plans such as the L4.9 billion ($7.2 billion) Unilever PLC Superannuation Fund, the L16 billion Railways Pension Fund and the L11.5 billion Shell Contributory Pension plan had "poor statements on socially responsible investing." The survey also found that trustees took little responsibility for implementing policies on ethical, social and environmental issues.
Local authority pension plans were more active in incorporating ethical, social and environmental considerations into investment decision-making, said Simon McRae, investment campaigner for FOE.
Local authority plans such as the L1.3 billion East Riding of Yorkshire Pension Fund, L2.2 billion South Tyneside Metropolitan Borough Council Pension Fund and L1.5 billion Nottinghamshire County Council Pension Fund scored top marks for their socially responsible investment policies.
FOE surveyed Britain's 100 largest pension plans to see to what extent ethical, social and environmental concerns were part of investment decisions.
Of the 100 plans contacted, 35 either refused to participate in the survey or did not provide details in their statement of investment principles. Among those were the L2.9 billion J Sainsbury PLC Pension Scheme, the L4.3 billion IBM Pension Plan and the L3.2 billion GlaxoSmithKline PLC Pension Plan.
FOE claimed the National Association of Pension Funds had encouraged its members not to participate in the survey.
NAPF spokesman Andy Fleming said, however, that the association had told members that they were not required to participate, and it was up to each pension plan to decide whether to respond.
Only 10 plans, including the L7.2 billion BBC Pension Scheme, the L30 billion British Telecommunications PLC Pension Scheme and the L22.2 billion University Superannuation Scheme Ltd., had "good" statements on socially responsible investing, monitoring mechanisms and direct engagement on these issues by money managers, according to the survey.
The majority of plans, however, had "vague or ambiguous" statements on socially responsible investing, with responsibility for implementing these policies passed to money managers without guidance or monitoring mechanisms, the study found. Plans in this category included the Railways Pension Fund, Unilever, the L2.8 billion Merchant Navy Officers Pension Administration Ltd. and the L2 billion Philips Pension Fund.
In response to these criticisms, Unilever officials said in a statement:
"The SIP statement that Unilever Pension Fund has drawn up is written to meet the legal requirements of the 1985 Pensions Act. It is intended as a brief summary only, reflecting the financial interests of the members of the fund. Behind this statement there is a strong, focused and proactive SRI policy which is an integral part of the Unilever Pension Fund's investment management process."
But FOE's Mr. McRae said the standardized wording of paragraphs covering SRI in pension plans' statements of investment principles was a sign of how little consideration was given to socially responsible investing and how most statements aimed simply at complying with the new legislation with the least commitment possible.
He said FOE had been encouraged by the number of plans that had included social, environmental and ethical issues in their statements of investment principles. A large number of plans also included corporate governance issues.
But the organization was concerned that many plans had no accountability mechanisms allowing trustees to ensure fund managers really were taking these issues into account. Less than a third of the pension plans surveyed were able to show how they reported back to trustees on ethical, social and environmental issues or monitored the companies in which they invested.
"This shows that incorporating SRI into the investment process is still at its early stages," said Mr. McRae.
There was also concern that pension plans and their money managers did not provide members with details about how they voted at company annual general meetings.
"It is clear that pension funds will have to significantly increase resources in the area of monitoring and reporting back to trustees and ultimately to members to ensure the effective implementation of socially responsible investment objectives within pension plan's statement of investment principles," the report said.