Climate change and social responsibility are unavoidable topics. As Karina Litvack, head of governance and sustainable investments at F&C puts it: “You can’t open a newspaper without seeing an article about bio fuels and the impact of climate change.” The question remains, however, whether this concern has filtered through to the investment strategy of big institutions. Asset managers with a strong ethical capability claim blooming interest in socially responsible investment (SRI) products, but the pension funds themselves stress an overall focus on responsible engagement, rather than investment in tailored SRI funds.
F&C, which runs £3.4bn (€4.4bn) in its Stewardship range, demonstrated its faith in the market with two launches in 2007: the F&C Ethical Bond Fund and the F&C Global Climate Opportunities Fund. Ms Litvack reports “a sharp rise in interest in SRI across Europe and beyond”, largely driven by the UN Principles for Responsible Investment, which were announced in 2006 by a group of the world’s biggest institutions. (See below.)
“There is more interest in countries with well established pension systems where pensions are independent, like the Netherlands, Scandinavia, Ireland or Australia,” she adds. “They are not inherently conflicted, whereas in France or Italy, where the self-funded part of the pensions industry is minuscule, you are looking at an asset management industry that is fully integrated with the corporate side.”
David Paterson, head of corporate governance at the UK’s National Association of Pension Funds, is sceptical about extensive investment in specific SRI products, although he reports growing interest in corporate responsibility, especially among bigger players such as the BT Pension Scheme.
Pension funds, he explains, have a fiduciary responsibility to their members, “and the view of the UK courts has been that constraining investment to purely SRI could possibly damage the financial wellbeing of the scheme.”
ABP, the €217bn pension fund for Dutch government and education workers, has opted for analysis of the implications of climate change across its whole portfolio.
Rob Lake, head of sustainability at APG Investments, the investment arm of the newly created independent management company for APB, explains: “We have a formal policy level commitment to look into environmental, social and governance issues in everything we do. We don’t call this SRI. It’s just what we do.”
Dutch metal workers fund PME has a detailed SRI policy, decided in May 2007. While “primarily designed to ensure the best possible returns from its investments, with as few risks as possible”, the fund’s mission statement also acknowledges “a social responsibility in that the capital it invests is collectively owned by the sector’s stakeholders”.
A recent Hymans Robertson report reflects this growing interest in SRI. “It’s still a fairly modest uptake in terms of overall percentage of assets under management,” says Craig MacKenzie, SRI and governance advisor at Hymans Robertson, “but interest is growing far more rapidly than at any other point.”
Pension funds, he explains, “have started to accept that, as shareholders in companies, they have influence, and responsibility to use that influence”. However the report found “a rather depressing lack of activity from most conventional asset managers”. If pension funds “want this kind of activity to happen, they will either have to do it themselves or hire a specialist manager with a real commitment.”
Ethical asset managers deny that SRI investments must be morally rather than financially motivated. George Latham, head of SRI funds at Henderson, which runs £870m (€1.14bn) in ethical products, says: “We absolutely believe that you do not lose performance. The need to tackle sustainability problems is creating a new wave of investment themes. Investing in these companies means investing in companies with a strong positive environmental impact and growth rate.”
Ms Litvack stresses that these are the firms that will win out in business terms over the long run. “Over time,” she says, “the moral case has morphed into the business case.”
UN PRINCIPLES FOR RESPONSIBLE INVESTMENT
- We will incorporate environmental, social and governance (ESG) issues into investment analysis and decision making processes.
- We will be active owners and incorporate ESG issues into our ownership policies and practices.
- We will seek appropriate disclosure on ESG issues by the entities in which we invest.
- We will promote acceptance and implementation of the Principles within the investment industry.
- We will work together to enhance our effectiveness in implementing the Principles.
- We will each report on our activities and progress towards implementing the Principles.
