Pension funds told to reveal ethical policies

PENSION FUNDS will for the first time be required to state their attitude to investing in controversial companies under a ground-breaking initiative unveiled yesterday.

A new Government regulation demands that the country's pension funds, which invest over pounds 400bn and own a third of the equity in the stock market, must state whether they have a policy on ethical investment.

The concept of ethical investment sprang from the green movement of the Eighties. It is promoted by investment houses such as Friends Ivory & Sime as a way for investors to stop their money going to arms companies, environmental offenders and unscrupulous employers.

Stephen Timms, the Social Security minister, has given pension fund trustees a year to state whether they have a policy on ethical investment, and if so what shape it will take. The regulation, under the Pensions Act 1995, will come into force next July. In a speech yesterday, Mr Timms said: "There is undoubtedly a significant groundswell of public interest in socially responsible investment. Ordinary people want to know what is being done with the money invested on their behalf. I believe this regulation will stimulate the debate and increase transparency in investment planning."

The Government's initial proposal was to make pension fund trustees state exactly what their policy was on ethical investment. However, the proposal was modified after pension funds protested they might face pressure from members to switch their investments. Some said investment returns would be depressed if stocks such as British American Tobacco or Shell were removed from their portfolios.

The National Association of Pension Funds said it was now satisfied with the regulation. Under the new rule, trustees wanting to eschew ethical investment can simply say they have no policy.