| Pensions funds can get more from 'green investing' - SRI expert |
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| 05/12/2001 | |
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by Nat Mankelow Pension funds investing in 'ethically and environmentally sound' companies are more likely to be on the receiving end of higher returns with low volatility, according to the investment advisor of a pension scheme which is deeply involved in socially responsible investing (SRI). Raj Thamotheram, SRI advisor of the £22bn Universities Superannuation Scheme (USS), told a recent National Association of Pension Funds (NAPF) conference that his scheme was meeting the needs of its 162,000 members by taking into account "ethical, social and environmental considerations when assessing the merits of investment in a given company." SRI – investment based on the environmental, social and ethical performance of a business – is becoming a core part of institutional investment in the UK and US. The rise of 'green' tracker funds and indices – such as FTSE4Good – has meant firms must show their environmental credentials if they are to attract the widest spread of investors. The focus on SRI has been further intensified as a result of amendments to the Pensions & Investments Act, which came into force last July. The Act places a requirement on occupational pension scheme trustees to disclose, in their statement of investment principles, whether they take full account of environmental, social and ethical issues in forming investment strategy. This is something USS takes very seriously. The reasons for USS's focus on SRI are clear, says Thamotheram. "We can make better evaluations and stock market selection decisions, build relationships with important stakeholders, and prevent or avoid value destruction." Thamotheram believes that by identifying good corporate management, its pension fund can avoid investing in firms with a heavy concentration of risk and therefore achieve better returns in the long run. "Railtrack, Enron, and Monsanto are firms that have mishandled corporate social responsibility in the past and we avoided these as a result," added Thamotheram. Fund managers wake up to SRI Research by Deloitte & Touche's Environmental and Sustainability services revealed that more UK fund managers are building SRI into their investment strategies. Of managers with fund values of £10-100bn, 62 per cent report medium to high levels of interest in SRI by pension fund trustees. A total of 55 per cent of funds are either already active in the SRI market (36 per cent) or were actively implementing plans to be so (19 per cent). In other research, professional services firm PricewaterhouseCoopers suggests that SRI "has the potential" to produce better-performing shares in the long-term. Firms can often garner the benefit of rising market value, and improved reputation, by tailoring their business models around a 'socially responsible' framework, according to PwC. However a survey by Barclays Global Investors (BGI) paints a different picture. According to a survey of FTSE 350 finance directors, only two per cent thought SRI was "a priority" for pension funds. "Although it is accepted that SRI is climbing up the agenda, the lack of concern from finance directors would demonstrate that it faces strong competition from issues like management fees, FRS 17, and the downturn in the equity markets over the past year," said BGI's head of business development, Miles O'Connor. Yet the example of another big public sector pension scheme to 'go green' hints at a positive future for pension funds wishing to do the same in the UK. CalPERS, which takes care of California's 1.2m public sector workers' pension and health benefits and has assets of over $143bn, is keen on SRI and it has $3bn in investments with active corporate governance strategies, and $500m allocated to CalPERs' Internal Relational Programme. This programme is dedicated to active corporate governance strategies in the US firms only. "Our experience indicates that active corporate governance strategies have proven successful and can add value to our investment portfolio," added William D Crist, president of CalPERs Board of Administration. |
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