Green risk snub by pensions

A report that assesses the UK’s 20 largest pension funds has revealed that, although the financial benefits of managing environmental, social and governance (ESG) risks are well recognised, the issues are being widely ignored.

FairPensions’ research found that, of the 20 funds – worth £292bn in total and accounting for more than 3.9 million members, or one-third of the occupational fund capital in the UK – around half have no apparent policy covering ESG issues. Additionally, many thought the issue to be the responsibility of their fund managers.

Only five of the 20 pension funds surveyed provided actual results of engagement on ESG issues, while 13 did not disclose voting records for previous AGMs on these issues. FairPensions believes these pension funds are ignoring the recommendations of their own industry bodies, such as the Institutional Shareholders’ Committee, which advises funds to publicly disclose voting records and responsible investment.

Mandatory disclosure
These results could provoke the government into making voting disclosure mandatory, since shareholders want more information on how their money is being invested and the ESG effects. The research recommended greater transparency in reporting fund engagement strategies, and recent voting patterns.

Although the link between pension funds managing ESG issues and improved financial performance is said to be proven, this message hasn’t reached the big banks, which dominated the bottom half of FairPensions’ ESG transparency league table. The bottom three pension funds were those of National Grid, Barclays Bank and BAE Systems, while BP’s fund fell from sixth last year to 16th this year. In contrast to their pension schemes’ low scores in ESG issues, though, Barclays, BP and National Grid achieved high scores in their own corporate social responsibility transparency polices.

Not all major UK corporates provided such doom and gloom. British Airways’ fund jumped from ninth to joint first with two other schemes, British Telecom and Universities Superannuation. HSBC moved up from 17th to 11th place, sharing its mantle this year with Royal Mail.

Useful links
For the full report, go to www.fairpensions.org.uk/news and follow the link to ‘Research’