Friends of the UK Sustainable Investment Forum (UKSIF) gathered at the Houses of Parliament on June 28th to celebrate the 10th anniversary of of environmental, social and corporate governance (ESG) regulation in the UK. UKSIF also launched a report that reflects upon the effects of the regulation and addresses important next steps for environmental, social and governance (ESG) issues over the next 10 years.

Speakers included the Rt. Hon. Stephen Timms MP and Michael Deakin, Manifest’s Chairman, and Chair of UKSIF’s Sustainable Pensions Advisory Board. Michael was asked to give guests a review of the work of UKSIF’s Sustainable Pensions Project as well as his personal view of the challenges ahead for the next ten years:

“I have been privileged to chair the Sustainable Pensions Advisory Board for the last few years. The board includes representatives from pension trustees, investment advisers, companies sponsoring pension schemes, local authority schemes and trade bodies and our aim is to promote the adoption of responsible investment policies by pension funds.

In order to help trustees, we have initially published a research document setting out how major funds across the world implemented their RI policy. We have also developed a library of useful documents that you can access. We have carried out two surveys among UK pension schemes and it was encouraging to see that it is not only the largest schemes that are following RI policies, and that there was a noticeable improvement in adoption amongst schemes over the two years between surveys given all of the other challenges facing trustees at that time. We included case studies in our publication of the survey results to show how different schemes have different approaches to implementation.

Now turning to the challenges ahead, I would like to concentrate on three areas.

First there is still more to be done to educate trustees about responsible investment. There is still confusion among many trustees about what we mean by RI and how this could be implemented.

The second challenge is for pension fund trustees to put more pressure on fund managers to “up their game”. For most funds there is not sufficient internal resource to implement RI and the trustees will rely on their fund managers to engage and vote. There is a wide range of capability in this area and unless trustees insist on a higher level of service as a requirement for awarding mandates then some managers will continue to do as little as they can. More time and effort should be spent understanding how the fund managers engage and vote and more resource should be applied by many managers to these activities.

My final challenge is to improve the efficiency of the voting system. The plumbing that lies behind voting is complex and inefficient. It is not easy to check how votes have been cast or even if they have been successfully received. I am aware that some funds enquired of their pension fund managers about how votes would be cast on the recent shareholder resolution and were told by their fund manager that they could not inform them in advance of the vote. If we are to really deliver results from adopting RI policies we need an efficient voting system in place.

In summary it is encouraging to see the progress made by pension funds in recent years in adopting and implementing RI policies but there is much more to be done. We need to broaden the number of funds adopting these policies, trustees need to put more pressure on fund managers to improve their RI capabilities and we need to invest in a better voting system.”

Last Updated: 2 July 2010