Survey of pension fund environmental and social policies reveals the transparent, the unaccountable, and some avoidable financial risks
A report by FairPensions has found that although leading pension funds now recognise the financial benefits of managing potential environmental, social and governance (ESG) risks in their portfolios, pension funds of many well-known companies still appear to be neglecting issues such as climate change and human rights.
The report assessed the UK's 20 largest pension funds, which together have 4 million members and are worth 292 billion pounds.
Researchers also found that despite the influence that pension funds have over corporate policies affecting our economy, society and environment, few were making meaningful efforts to be publicly accountable, with only 20% disclosing voting records and half having no apparent policy covering ESG issues.
Some funds have made significant improvements since last year, raising the overall average score by 58%. British Airways Pension Scheme (BAPS) and Strathclyde Pension Fund were especially impressive, with BAPS jumping from ninth in last year's survey to joint first this year, and Strathclyde nearly doubling its score. Top of the results table are the Universities' Superannuation Scheme, BAPS and BT Pension Schemes, all scoring 9 out of 10 available points.
However, there was cause for concern lower down the table, where a number of funds stated that ESG issues are the responsibility of fund managers, despite recent research by FairPensions which found that most fund managers cannot show evidence of effective policies on these issues. Only 5 of the 20 pension funds surveyed provided actual results of engagement on ESG issues.
Barclays Bank plc UK Retirement Fund, BAe Systems Pension Scheme, and National Grid plc Pension Scheme all scored less than 1 point out of 10. A majority of funds in the lower half of the table showed no improvement at all since last year.
Perhaps surprisingly, pension funds of major banks were all in the lower half of the results table, despite generally good corporate responsibility policies in that sector. In contrast, all the local authorities surveyed appeared in the top half of the table, with an average score of 68%.
FairPensions believes that pension funds which are not transparent about ESG polices and voting records (13 of the 20 funds surveyed do not reveal voting records) are ignoring the recommendations of their own industry bodies, such as the Institutional Shareholders' Committee, and may provoke the government to make voting disclosure mandatory, which it now has the power to do.
Alex van der Velden, Executive Director of FairPensions, said: "We are pleased to see that some funds are now recognising the value of responsible investment and accountability, but concerned that others haven't yet woken up to these issues - we hope these funds do wake up in time to avoid the next Enron-style shock"
Colin Hartridge-Price, Secretary to the trustees of the BT Pension Scheme, said: "The BT Pension Scheme regards good scheme and corporate governance as hugely important, and we focus a lot of energy in this area. However, we do not publicly disclose details of the engagements with companies that have taken place on behalf of the Scheme, as we consider this would harm our ability to work with companies in the future."
FairPensions has set up a facility on its website (www.fairpensions.org.uk) which individuals can use to ask their own pension fund about its responsible investment policies.