You can retire gracefully with clean pensions

Pension funds are under pressure to invest more ethically. Ever since the law changed last July, forcing pension schemes to say whether they consider social and environmental issues when making investment decisions, trustees have realised that members not only want information, they want the strategy to change if it isn't particularly ethical.

Pension funds are under pressure to invest more ethically. Ever since the law changed last July, forcing pension schemes to say whether they consider social and environmental issues when making investment decisions, trustees have realised that members not only want information, they want the strategy to change if it isn't particularly ethical.

According to a survey last autumn conducted by the Social Investment Forum, nearly half of Britain's leading occupational pension schemes want fund managers to take social and environmental issues into account in their investment decisions.

"There is more pressure on pension funds generally to consider socially responsible investment," says Michael Tyrrell, senior researcher for Jupiter's Ecology fund. "But at the same time it is becoming easier because companies are addressing these environmental and social issues. Five or six years ago, finding companies to invest in who were taking this agenda seriously was very difficult. We were confined to a small niche of companies."

The Ethical Investment Research Service (Eiris) has discovered that 77 per cent of people believe their pension scheme should operate an ethical policy whenever it can do so without reducing financial returns.

The ultimate responsibility of pension fund trustees is to members, and good performance is their mandate. It is only pressure from members that will persuade pension managers to seek out socially responsible companies. But as businesses take social and environmental issues more seriously, pension funds are more likely to invest ethically anyway - because performance is little hampered.

Engagement is one of the best ways an investment manager can fulfil a pension scheme's wishes. But with numerous fund managers investing in any one company, they are realising that they need to organise themselves into one voice so they aren't presenting conflicting views.

There is already evidence of engagement going on. Oil company BP recently received four shareholders' resolutions, including one from Greenpeace, on environmental and human rights issues, which will be debated at its April annual general meeting.

Greenpeace's resolution asked BP to explain its plans for moving away from fossil fuel production to renewable energy in response to the problem of global warming. It was backed by 170 shareholders with £26m of shares.

BP says the success of the resolutions will depend on the support they get. Although last July's change in the law didn't go as far as the Government wanted - it was watered down by the National Association of Pension Funds (NAPF), which feared performance would suffer - pension members can still demand to know where their retirement money is invested.

And if they aren't happy with the answer, they can put pressure on their pension manager to make changes.

"We were concerned that the trustees of pension funds would be put in the position of being moral arbitrators," says a spokesman for the NAPF.

"Trustees are responsible to the members and have a fiduciary duty to ensure the investments of a scheme obtain the best possible returns for members. We didn't want them to come under any pressure from lobby groups.

"We do encourage, wherever possible, pension fund assets to be invested in social or ethical investments if they produce good returns. We just didn't want it to be compulsory."

However, in practice, disclosure has meant that pension managers have been thinking harder about ethical, social and environmental issues when it comes to investing members' money.

"Many pension fund managers are in fact investing in SRI," says the NAPF spokes-man. "We are getting increasing evidence that this is happening from our members. We are also trying to ensure that pension fund trustees carry out the spirit of the legislation."

Campaigners also hope that the launch of stakeholder pensions in April will raise awareness of ethical investing. Stakeholder pensions are aimed at those earning between £10,000 and £30,000 a year. Charges are no more than 1 per cent per annum and you can invest as little as £20 a time.

The Post Office is launching a stakeholder pension, which will be run by Standard Life. Investors have a choice of six funds - with-profits, managed, British tracker, protection, ethical and cash. The hope is that investors, given the choice of an ethical element, will opt for it.

The CIS Responsible Shareholding Unit is calling on the Government to seize the opportunity of stakeholder pensions to promote socially responsible investment - by ensuring customers are aware of the investment principles behind any pension offered.

* The Ethical Investment Research Service has a free guide, 'The Changing World of Pensions', to help pension members influence their scheme's policy on social, ethical and environmental issues. Contact 0845 606 0324.

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