Ethical investment or just common
sense?
The increased transparency that new SRI
legislation demands may be a positive move but Jenny Rosser reminds us
that, for many schemes, SRI is not a new phenomenon.
Avid readers of this column (I am sure
I must have one!) will know that last year I wrote about ethical investment -
now renamed socially responsible investment (SRI). Little did I know a
completely new section of our industry would emerge because of these three
little words!
Since 3 July, all pension schemes need
to have a policy regarding SRI within their statement of investment principles
(SIP).
The problem that trustees have had to
wrestle with, in formulating a policy, is How far do we go?".
The starting point, of course, has to
be back in the mid - 1980s and Arthur Scargill. Dear old Arthur tried his own
version of SRI, way back then, which resulted in a landmark legal case. It was
clear from the judgement given by Vice Chancellor Megarry that, first and
foremost, trustees must take into account the financial implications of any
investment decision. However, a secondary decision could have been based on
ethical criteria.
As far as I'm aware very few boards of
trustees used to base their investment strategies, even at a secondary level,
on SRI grounds. So, the government has given us a push. But, as an industry,
how committed are we?
From reading surveys that have been
carried out so far, it seems that many of the larger pension schemes have
adopted an approach to companies with questionable ethical policies of. 'let's
discuss" rather than "we are not investing in you".
This approach certainly reflects the
principles of the Megarry judgement, but are we simply paying lip service to
the new requirements. Does the pensions industry really think this softly,
softly approach of dialogue and implied threat will have any real effect? It
will be interesting to find out.
And there seem to be plenty of new
services springing up to offer us different sorts of information. A major
survey has been announced, organisations are offering details of how companies
are following environmentally responsible strategies - all, presumably, at a
cost to pension schemes and therefore the sponsoring employers.
When all the survey information is
available to us and all the new services and agencies have produced their
results, will we learn anything more than. common sense and everyday awareness
tell us anyway?
We already know from research that
companies that act in an environmentally sympathetic way have, over the last
decade, marginally outperformed against competitors who do not follow such
policies.
Winning environmental awards may
reflect directly on share prices but accidents such as oil spillages have the
complete opposite effect. We don't, as an industry, need to formulate a
specific SRI to know these facts.
Meanwhile, pressure groups are going to
do what pressure groups do. And, if you are like us, you will already have
received communications from some of them which will need to be responded
to.
Some scheme operators tell me they have
also been picketed - but not about their scheme's investment policy on SRI. The
picketing was more about their parent companies stance on environmental
issues!
So I ask myself, is this formal SRI
statement simply a PC fad or is it a reflection of something that the best
investment managers have been doing for years and will probably continue to do
for the future - albeit that their decisions have been based on a good
financial basis and common sense, rather than the impact of three little
words.
Jenny Rosser is pensions manager at
the BA Pension Scheme. This article does not necessarily reflect the views of
British Airways or the trustees of the British Airway Pension Scheme.
Pensions Week
17 July, 2000
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