Ethical Foundations

Too few CFOs are concerned about investing their companies' cash in a socially responsible way.

Companies are not shy about promoting themselves to shareholders as ethical investments, but how ethical are they when it comes to investing their own cash?

It was a question raised recently by UKSIF, a London network for sustainable and responsible financial-service providers, as it canvassed pension fund trustees of UK companies considered to be corporate social responsibility (CSR) leaders. The research aimed to gauge trustees’ awareness of so-called responsible investment (RI) and whether they passed that on to fund managers. The results were underwhelming in many respects, says Penny Shepherd, UKSIF’s chief executive.

First, the high number of corporate do-gooders that refused to participate in the research was striking. Only about half of the 278 companies that UKSIF identified — from the FTSE4Good index and the Carbon Disclosure Project’s Climate Leadership group — said they would take part. The final research universe comprised just 33 companies, of which about 75% have RI policies. But while two-thirds believe that environmental, social and governance factors have a material impact on their funds, not all monitor whether their RI policies are adhered to or consider RI when assessing fund managers.

UKSIF is focusing on the bright side by highlighting the best practice schemes, such as British Telecom’s 350,000-member defined benefit plan, with around £40 billion (€57.4 billion) of assets. Features of the BT plan include a semi-annual report on its adherence to UN Principles for Responsible Investment, prepared by external advisor Hermes Pensions Management. Also, trustees’ work — including annual voting records — is published on the scheme’s website.

Reg Hinckley, former CEO of BT Pension Trustees, says the high marks received in the ranking was a surprise, but he reckons the company-wide CSR culture is deeply rooted. “We take a strong lead from our own corporate experience,” he says.

This underlines the role of CFOs and other top managers in setting policy, Shepherd says. “Fund managers sit down with corporates to discuss their appetite for risk, so there is scope for discussions about other topics,” such as responsible investing. Just don’t expect too much too quickly. “Pension fund decision-making timescales are much slower than corporate decision-making timescales,” she says with a sigh.

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