FairPensions, the UK-based campaign for responsible investment has published its 3rd annual survey of pension funds and their ESG arrangements.

The headline findings are that although major UK pension funds are now acknowledging the potential of ‘non-financial’ issues to affect the value of investments, many still lack key strategies to manage these risks. The report also raises questions about the fund management industry’s ability to meet changing client needs and demands.

Catherine Howarth, Chief Executive of FairPensions, said “Pension funds are now recognising that ‘non-financial’ issues can become financial issues, but many still need to match words with deeds if they are to be ready for major challenges associated with issues like climate change.

“Fund managers and advisors also need to anticipate changing client needs if they are to rebuild trust and retain the business of clients who becoming more aware and assertive of their long-term needs”

Although all the funds which participated in the research project have ESG statements recognising the potential impact on financial performance, one third do not apply their principles to the instruction, selection or reporting requirements from their fund managers.  The much vexed issue of public transparency is also disappointing, according to FairPensions, with two thirds of funds not disclosing their voting record.

There is an apparent correlation between schemes that are UN Principles for Responsible Investment signatories and those with high good practice scores. Although only 6 of the top 30 UK pension schemes were signatories as at the date of the survey, all were among the top ten performers. A significant but growing minority of funds now require fund managers to have stronger ESG risk-management capabilities: of the funds who submitted information, 35% use UN Principles for Responsible Investment signatory status as a criterion in fund manager selection and 25% use climate change competence as a criterion.

However, those funds which do consider fund managers’ ESG performance are likely to see very diverse results: research which FairPensions carried out on this subject in November found wide disparity in resources and activity between companies surveyed.

Copies of the report can be found Here >>

Last Updated: 27 April 2009