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July 17, 2000
New British Law Encourages Socially Responsible Pension Funds
Disclosure law effective this month brings UK pension funds to the forefront of socially
responsible investing in the European Union.
SocialFunds.com --
The history of socially responsible investment has been motivated solely by the social,
environmental, and ethical concerns of individual and institutional investors, until now. A new law
in the UK is one of the first in the world relating to social investing, and stands to make a big
impact on the industry in Britain and perhaps internationally.
 The British Government's Socially
Responsible Investment regulation, which went into effect this month, requires pension fund
trustees to disclose their policies on socially responsible investment, including shareholder
activism. While there is no stated requirement for social investment, the effect of this disclosure
law may pressure pension funds to address shareholder concerns.
"This is the first UK
legislation specifically on socially responsible investment," said Penny Shepherd, Executive
Director of the UK Social Investment Forum (UKSIF), the professional association for social
investors in the UK. "It is a coming of age for socially responsible investment in the UK and a
historic moment. Over time, it should lead to a major increase in ethical investment by
occupational pension funds."
It may not take much time at all. A recent survey carried out
by Environmental Resources Management (ERM), an international leader in environmental consulting,
reveals that 21 out of the UK's 25 largest pension funds intend to implement socially responsible
investment principles. The companies surveyed represent nearly half of the $1.2 trillion (US$) in
UK pension fund assets, which makes up about a third of all investment in the UK stock market.
The ERM survey asked pension funds how they were going to implement an SRI policy and what
proportion of funds they anticipated investing against SRI criteria over the next two years. Nearly
90 percent of the funds surveyed said they would include environmental, social, and ethical impacts
in their investments at some level, following the new law.
"If pension funds are going to
seriously engage industry on issues such as human rights, child labor, and environmental pollution,
they face a steep learning curve," said ERM Director Tom Woollard. "Not only are they going to have
to decide what questions to ask companies, but also what they are going to do with the answers."
Around 70 percent of the funds surveyed said they planned to implement active engagement
of companies, rather than simply boycotting specific industry sectors such as tobacco and alcohol.
While most funds were undecided about the level of social investment, two said they were committed
to implement social investing principles across 100 percent of their funds, representing at least
180 billion in UK equities.
Friends, Ivory & Sime (FIS), a global pioneer in socially
responsible investing with more than $24 billion already invested responsibly, is one of these
leaders. "Our task is to challenge companies to improve their performance on behalf of
shareholders, and there is every indication that the new regulations will make a difference," said
Rachel Crossley, Director of Policy for socially responsible investment at FIS.
Although
social investment is at a different stage in its evolution in Europe, many EU nations are leading
the world in the areas of corporate responsibility, environmental sustainability, and community
development. With this new law, UK is pioneering the use of financial institutions as a key policy
instrument to bring about sustainable development.
"The government is to be congratulated
for recognizing the increasing importance of social, environmental, and ethical considerations to
successful investment decision making and for responding to the legitimate concerns of pension fund
members about how these issues are taken into account by their pension funds," said Penny Shepard
of UKSIF.
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SRI World Group, Inc. All Rights Reserved.
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