From a slightly dingy office tucked away among the housing estates of Borough in south London, Catherine Howarth is trying to foment a revolution. But she is no banner-waving fundamentalist. Rather, the chief executive of FairPensions, the ethical investment campaign group, is trying to work the system from the inside – waking the slumbering Leviathan of Britain's pension holders, shaking up the secretive world of fund management, and harnessing the vast power of pensions as a constructive force.
"It is our money after all," says the heavily pregnant Ms Howarth, with all the passion of a conviction reformer. "We should be at the table, asking how the industry that invests on our behalf is going about its business, and pushing for greater transparency about what is being done with our money." She doesn't actually bang on the table. But she looks as if she might.
Ethical investment is not a new concept, but it is coming of age. Gone is the 1970s-style "exclusion" model, which simply ruled out sectors of the economy, typically pornography, arms and tobacco. The 21st century approach is far subtler. It focuses instead on active investors scrutinising the decisions of their fund managers, and the companies they invest in, to bring their influence as owners to bear on company strategy.
FairPensions' agenda is not about sacrificing financial gain for the moral high ground. At its heart is the view that unethical investments tend to be more short term, and therefore more likely to be financially unstable for long-term investors. Some risks will be worth taking. Others not. But investors have the right to know what they are.
"It's really important to emphasis that ethical investment is about making sure pension fund managers get a good return," says Ms Howarth, who started out as a community organiser and was trained by the same organisation as was Barack Obama. "We are absolutely not anti-capitalist: we need companies to do well for people to get pension payments that they can live on."
The headline-grabbing "tar sands" campaign is emblematic of the approach. Unlike the environmental lobby, FairPensions is not calling for the controversial, energy-intensive oil projects to be halted. But it is saying that companies like Shell and BP need to be upfront with investors about the financial risks involved – legal action from local communities, or changes in carbon emissions laws.
"BP and Shell are cornerstone companies of all British pension portfolios," Ms Howarth explains. "So investors have to make sure they are making the right investment decisions, and that their fund managers are active in asking these questions."
The message is gaining some traction, albeit from a low base. This week, some 11 per cent of voters at Shell's annual general meeting either abstained or said "yes" to a FairPensions-co-ordinated resolution calling for the group to give more details on the financial, environmental and human rights risks of tar sand projects. Last month a similar resolution at the BP AGM garnered 15 per cent in either votes or abstentions. The results are clearly far from a victory. But the key is to raise awareness of the principle of active involvement, says Ms Howarth. "The campaign is important in itself, but it also helps alert people to the bigger questions about the security of their retirement savings."
It can be an uphill battle. Pension funds commonly provide members with very little information. Equally, it can be hard to drum up public interest. "Most people don't want to talk about their pension fund's investment strategy," Ms Howarth admits.
But grim financial realities are helping focus attention. At an individual level, lucrative final-salary pension schemes are closing, leaving people exposed to far higher personal risk. At the same time, the financial crisis has called into question how far the so-called experts can be relied upon. "The financial crisis changed things overnight," Ms Howarth says.
It catapulted the issue of responsible ownership to the level of a major debate because the people being paid to look after our money didn't seem to have been on top of the risks."
The concern is that opportunities for reform fade as the economic situation improves. "We are drifting back to business as usual," Ms Howarth says ruefully.
For FairPensions, there is only one answer, and it means fundamental changes in the investment industry. The problem is one of incentives. While pension funds are exposed to risks over a 25-year span, fund managers are typically awarded mandates of just three to five years, with annual reviews of performance against that year's benchmark.
"In principle pensions are long-term investments, but in fact they are driven by short-term logic," Ms Howarth says.
She acknowledges there are many in the industry that would agree, and that it is tricky for a single company to jump first. Hence FairPensions' major lobbying effort to ensure the "stewardship code" for fund managers proposed by last year's Walker Review has enough teeth to make a difference. "It may sound a bit dull, but it will define the behaviour of the people that look after your retirement savings," Ms Howarth says.
And the campaign does not stop at national boundaries. FairPensions is in touch with similar groups across the developed world, hoping to spread the vision of direct shareholder engagement. "We don't have a world domination plan," Ms Howarth laughs. "But we're are all saving for pensions in roughly the same way, and all hoping the stock market will be OK in long term, so we want to share what FairPensions has learned."
It is not a revolution as such. But it is not far off.
2008 to the present Chief executive of FairPensions, the ethical investment campaign group
2007 Elected as a member-nominated Trustee of The Pensions Trust
2000-2008 Community organiser at London Citizens
1996-2000 Researcher at New Policy Institute, a think tank
1996 Graduated with a degree in Modern History from Oxford University
Ms Howarth is married and lives in London. She is expecting her first child next monthReuse content