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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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