Councils’ pension funds ‘pay lip service to ethics’

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CAMPAIGNERS have attacked Yorkshire council pension funds for “only paying lip service” to socially responsible investment after it emerged millions of pounds of public money is being poured into firms accused of environmental and human rights abuses.

The funds have defended their records, claiming their commitment to socially responsible investment is bound by fiduciary duty – a legal obligation to act in the best interest of their members.

Amnesty International claimed, however, it was possible to achieve considerable returns for shareholders without putting money into global corporations accused of unethical practices.

Three of the four Yorkshire local authority funds have nearly £200m of holdings in global mining firm Rio Tinto, which has been widely targeted by environmentalist groups for its activities.

Most significant criticism to date has come from Norway’s government, which sold 855 million dollars worth of shares in the company and banned further investment owing to environmental concerns. Rio Tinto disputes the claims.

Peter Frankental, Economic Relations Programme Director at Amnesty International, said: “Paying lip service to socially responsible investment is not good enough.

“Pension funds are a significant source of capital for companies. In the current crisis of confidence in global capitalism, it would only be appropriate for public sector pension funds to use their leverage over companies they invest in to seek improvements in their human rights and environmental impacts.

“In a climate where there are so many corporate scandals involving human rights abuses, public sector pension funds should ensure that they do not unwittingly contribute to those abuses through their investments.”

As major investors each fund also has the power to vote at the board meetings of the firms they invest in on issues such as the pay packages and bonuses for top executives but two of the regions funds will not publicly reveal how they have voted.

The West Yorkshire Pension Fund statement of investment principles says investment decisions are taken based on financial and commercial considerations so as to yield “the best return by way of income and capital appreciation”. If it is shown that particular types of ethical investment can produce at least comparable returns, then the fund will invest in such companies.

The fund, which does publish details of its holdings and voting behaviours, has £127m invested in Rio Tinto and more than £88m invested in British American Tobacco.

A spokesman said: “The fund has a legal duty to maximise its investment returns, and the tobacco sector has produced very good returns relative to the market in recent years. The fund engages with its investments to encourage companies to be socially responsible within the sphere of activity.

“The fund would be concerned by any (human rights or environmental abuse) allegations, and would factor this into its engagement programme through the Local Authority Pension Fund Forum.”

The East Yorkshire Pension Fund invests £37.8m in Rio Tinto, and nearly £23m in BAT. A spokesman said they had a duty to maximise the return on their investments and refused to comment on their use of shareholder vote.

“The Pension Fund exercises its voting rights in accordance with the policy disclosed in the Statement of Investment Principles,” he said.

A spokesman for the North Yorkshire Pension Authority, which has a £572,612 holding in Japan Tobacco, said: “The primary responsibility of the Pension Fund Committee is to act in the best interests of the Fund and its beneficiaries. However, as a responsible investor, NYPF wishes to promote corporate social responsibility, good practice and improved performance amongst all companies in which it invests.”

The fund also does not publish its voting behaviour.

Comment: Page 10.