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October 11, 2000
UK Pension Funds Embrace Social Responsibility
A survey by the UK Social Investment Forum reveals how pension funds are responding to the new
social investment disclosure law.
SocialFunds.com --
Last July, a new regulation in the UK required the trustees of pension funds to disclose how they
account for social responsibility issues in their investment strategies, if at all. A new survey
indicates the surprising extent to which socially responsible investment is being accepted by
pension funds in the wake of this trend-setting law.
 "Response of UK Pension Funds to the SRI
Disclosure Regulation" was released last week by the UK Social Investment Forum (UKSIF), a
membership network for stakeholders involved in socially responsible investment. The study reports
on the new disclosure statements of the top 500 UK pension funds, revealing that 48 percent of the
funds surveyed want their fund manager to respond to the financial implications of corporate social
responsibility issues.
"Our findings clearly demonstrate that the UK's major pension
funds are concerned about the implications of social, ethical and environmental issues," said Penny
Shepherd, Executive Director of UKSIF. "The fund management industry must now respond. Fund
managers need to develop greater expertise in assessing companies' social and environmental
performance."
The UKSIF survey is the most comprehensive study to date looking at the
response of pension funds to the new disclosure regulation, with responses from 171 funds
representing more than $400 billion in total assets and 6.4 million members. This 34 percent
response rate was a representative a sample of 500 of the top company pension funds by value, as
well as 97 local government, or "local authority," pension funds.
The survey revealed
that many of these funds are still in the initial stage of disclosing their intentions regarding
social investment. There was a large variety of disclosure statements, with lengths ranging from
one sentence to two pages. Several statements stood out for their high level of detail and unique
approach, while others were notable for their vagueness.
The report found that 59 percent
of the UK pension funds surveyed, representing 78 percent of total assets, incorporate socially
responsible investment into their investment strategies. Only 14 percent of funds, representing 4
percent of total assets, state specifically that social concerns will not be taken into account.
These results suggest that larger pension funds are more likely to take socially responsible
investment considerations into account than smaller ones.
The survey revealed another
distinction between the strategy of company pension funds and local government pension funds. While
company pension funds tend to delegate implementation of social investment policy to their fund
manager, government funds tend to retain ownership of their SRI policy and favor "engagement," or
shareholder advocacy, not necessarily via the fund manager.
Local government pension
funds form the majority of the funds surveyed that incorporate social investment in their
strategies by engaging in direct shareholder advocacy with companies. Nearly three quarters of
government funds mentioned engagement in their statements of investment principles, compared to a
quarter of the company pension funds surveyed.
The new disclosure regulation is the first
time that the concept of socially responsible investment has been placed into UK law, a significant
event by itself. As revealed by the UKSIF survey, the law is also expected to have a considerable
impact on the growth of social investing in pension funds, which account for about a third of the
stock market in the UK.
"The SRI disclosure regulation has brought a new level of scrutiny
by civil society to the investment decisions of pension funds," said Shepherd. "The number of
replies we received to this survey demonstrates an impressive transparency by the UK pensions
industry in responding to this unfamiliar but inevitable interest."
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SRI World Group, Inc. All Rights Reserved.
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