Session 2009-10
Publications on the internet
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Memorandum submitted by Oxfam & FairPensions (UKFI 03) About FairPensions 4. FairPensions is the operating name of Fairshare Educational Foundation, a registered charity that aims to persuade UK pension funds and fund managers to adopt an effective responsible investment capability. Responsible investment (RI) involves monitoring and managing environmental, social and governance (ESG) risks and opportunities, to help safeguard investments and promote better corporate governance, as well as securing other environmental and social benefits. 5. FairPensions is supported by a number of leading charities and trade unions, including ActionAid, Amnesty, BECTU, CAFOD, Community, CWU, ECCR, EIRIS, Greenpeace, NUJ, Occupational Pensioners’ Alliance, Oxfam, PCS, Traidcraft, Unison, Unite and WWF. We are also supported by almost 5,000 individuals. 6. F urther information about FairPensions and about our approach to RI can be found on our website at www.fairpensions.org.uk . About Oxfam GB
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Oxfam GB is a non-governmental organisation working together with others to find lasting solutions to poverty and suffering across the world. We work with partners and local organisations whose knowledge of local communities, cultures, and needs enables us to achieve immediate and lasting impact. Oxfam’s approach is three-fold: Firstly, Humanitarian - saving lives by responding swiftly to provide aid, support, and protection during emergencies. Secondly, Development - creating long term projects that enable people to bring themselves out of poverty. Thirdly, Campaigning - putting pressure on global leaders and advocating at the highest level, for real and lasting change. Oxfam works in more than 70 countries, across 5 continents, and, in the last 5 years alone, has helped over 20 million people.
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Oxfam works with institutional investors to influence them to adopt practices that help poor people, to increase the benefits of private-sector investment for poor people and mitigate negative impacts. We work on Responsible Investment in various ways including influencing and engaging, and through our analytical engagement project Better Returns in a Better World
See http://www.oxfam.org.uk/resources/issues/privatesector/investment.html
9. Although FairPensions' primary focus is on occupational pension funds and fund managers, many of the principles behind its work apply equally to the subject matter of this inquiry. UKFI-managed institutions are responsible for safeguarding the savings of large numbers of British subjects, and their investment behaviour has the potential to impact the financial stability and environmental sustainability of UK plc. It is therefore important that UKFI manages exposure to environmental risk, and future-proofs investments against factors that might reasonably be expected to precipitate financial or economic shocks. These include rising carbon prices and the physical impacts of climate change.
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Indeed, UKFI clearly recognises this responsibility and is already committed to an active investment strategy aimed at securing positive long-term outcomes for the national economy. Among the performance assessment indicators it is currently considering are "a strong track record for UKFI on engaging with our investee banks, including through exercise of our voting rights", and a market perception of UKFI as "an active, engaged commercial shareholder". Another suggested indicator is "meaningful reform" in investee banks "linking incentives to long-term sustainable value creation."
http://www.ukfi.gov.uk/about-us/assessing-performance/ , accessed 17/02/10 Responsible investment and building a low-carbon economy 11. Investors have huge potential influence upon corporate emissions policies. However, short term incentive structures which are endemic in the sector can effectively suppress corporate progress on emissions reductions. Assessing and managing greenhouse gas (GHG) exposure is therefore entirely consistent with UKFI's stated objective of encouraging longer-term investment horizons in its investee banks. 12. Transparency on GHG exposure also has indirect benefits. There is a developing public appetite for data about the carbon footprints of the products we consume. However, our emissions as indirect shareholders, through pensions, savings, ISAs etc, are typically very large but are not revealed to us. Reporting on these emissions would ensure that social groups who might be motivated to use their financial power to support the transition to a low-carbon economy are facilitated to do so. 13. The government has already implicitly recognised, through its guidance on GHG reporting, that companies should publicly report their emissions in recognition of the impact they have upon all of us. It therefore seems consistent that those organisations with collective ownership of companies – particularly those that have received large amounts of taxpayers' money – should be publicly accountable in the same way.
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Requiring investors to calculate and report on the emissions of portfolio companies increases the likelihood that they will take a more active role in monitoring and managing these emissions, thereby assisting the transition to a low-carbon economy. There is also mounting evidence that an active approach to environmental, social and governance risks can lead to improved financial performance. A 2007 meta-analysis by Mercer found a positive correlation which was particularly strong when investors adopted an engagement approach – exerting influence on corporate behaviour through the exercise of shareholder rights.
Asset Management Working Group of the UNEP Finance Initiative and Mercer, Demystifying Responsible Investment Performance: A review of key academic and broker research on ESG factors (2007), 13-14. Available at http://www.mercer.com/referencecontent.htm?idContent=1332560
15. To be clear, we do not advocate that UKFI-managed institutions should become "ethical investors" i.e. positive or negative screening of "good" or "bad" companies or sectors; we do advocate that institutions should become Responsible Investors, i.e. monitoring and managing long-term issues, including environmental, social and corporate governance factors, which are likely to become financial risks or opportunities (climate change is an obvious example).
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There are numerous examples of best practice, some of which are shown in the appendix to this document.
http://www.unpri.org
www.cdproject.net
Recommendation 1: Reporting on GHG exposure 17. We recommend that UKFI-managed institutions should report publicly on a regular basis on their total portfolio emissions and their strategy for emissions reduction. 18. Calculating and reporting emissions ensures institutions are better able to manage their own risks associated with portfolio GHG exposure and to be responsible corporate citizens with regard to tackling climate change.
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Disclosure of portfolio emissions by investors need not be an onerous requirement – especially as reporting by investee companies increases under the government's guidelines for measuring and reporting GHG emissions.
Defra/DECC, 'Guidance on how to measure and report your greenhouse gas emissions', September 2009 Recommendation 2: Reporting on responsible investment policies 20. We recommend that UKFI-managed institutions should report on action taken to implement a policy on environmental, social and governance risks in the selection, retention and realisation of investments. Annual Reports should also provide details of how such considerations are taken into account in the exercise of shareholder rights, including voting rights. 21. This does not imply prescriptive measures on the strategy or operation of UKFI owned institutions. Rather, it means prompting them to examine whether their practices are delivering against the interests of their own stakeholders – including the taxpayer – in both the short and the long term. 26 February 2010
(Due to FairPensions’ main area of expertise and interest, we have focused on pensions providers, but the principles remain the same) ABP (Netherlands)"Stichting Pensioenfonds ABP is the pension fund for employers and employees in service of the Dutch government and the educational sector". Extracts from ABP website
Environmental, Social and Corporate Governance Policy"ABP views it as its obligation to achieve the highest possible return for clients. In doing so, it believes that companies with strategies which, in addition to financial return, place a high value on the environment, social factors and good corporate governance will perform better in the long term. In addition, we are aware of the far-reaching influence of our investments and the social responsibility that this implies. The reason for this is the large amount of capital that we invest and our substantial position in the capital market. For this reason, we have chosen to implement a strong ESG [environmental, social and governance] policy" .
" Research and integration of ESG factors In the Strategic Investment Plan for 2007-2009, we set our intention to incorporate environmental, social and corporate governance factors in all investments. We are currently applying this policy to domestic and global equities with a total value of approximately 22 billion Euros. We are also extending the policy to other types of investments, such as real estate and bonds. This trend is sure to continue in the future. We believe that capital markets ultimately take account of environmental, social and corporate governance risks and that this is reflected in share prices. We are making progress in integrating ESG information into our processes. ESG analysis is already factored into the decision-making process of some of our largest funds. In addition, specialised ESG analysts advise the portfolio managers regularly on topics such as climate change, human rights and access to medicines in developing countries. In making decisions on investments, these topics carry a heavy weight, as they have consequences for companies' financial performance" . "Exercising voting rights The exercise of voting rights is an essential part of an efficient corporate governance system. Both shareholders and directors have an interest in – and responsibility for – attracting the highest possible turnout at the AGM. A high turnout is beneficial for the stability of decision-making at the AGM and thus offers (good) executive directors the possibility of increasing the legitimacy and extending the basis of their actions. The reduction of absenteeism therefore strengthens the accountability mechanism. ABP fulfils its responsibility by – where practically possible – voting on all the shares which it holds in all the companies in its portfolio" Canada Pension Plan Investment Board "The CPP Investment Board invests the funds not needed by the Canada Pension Plan (the "CPP") to pay current benefits…its long-term goal is to contribute to the financial strength of the CPP and thereby assist in sustaining the future pensions of 17 million CPP contributors and beneficiaries" Canada Pension Plan Investment Board is a UNPRI signatory. Extracts for CPP "Policy on Responsible Investing" . Responsible Investing Policy: "Responsible corporate behaviour with respect to environmental, social and governance (ESG) factors can generally have a positive influence on long term financial performance, recognizing that the importance of ESG factors varies across industries, geography and time; Disclosure is the key that allows investors to better understand, evaluate and assess potential risk and return, including the potential impact of ESG factors on a company’s performance; Investment analysis should incorporate ESG factors to the extent that they affect risk and return". (Page 1) Engagement but not screening "In the context of our long-term investment horizon, the CPP Investment Board aspires to integrate ESG factors into investment management processes across the portfolio, including all asset classes, where relevant. As stated in our principles above, it is our belief that responsible corporate behaviour with respect to ESG factors can generally have a positive influence on long-term financial performance. Consistent with the CPP Investment Board’s belief that constraints decrease returns and/or increase risk over time, we do not screen stocks. We encourage responsible behaviour in our public equity portfolio through engagement. We believe that engagement is a more effective approach through which shareholders can best effect positive change and enhance long-term financial performance. Moreover, we believe engagement is consistent with our mandate to maximize investment returns without undue risk of loss." (Page 2) Research "In order to enhance our responsible investing strategy, the CPP Investment Board actively supports research into the long-term financial materiality of ESG factors, including the development of better tools for quantifying how these factors affect securities valuation."(Page 3) Collaborative initiatives "Engaging collaboratively with other institutional investors leverages internal resources and is an effective way to encourage improved transparency and performance on ESG factors across the CPP Investment Board’s portfolio". (Page 4) "Direct Engagement The CPP Investment Board contacts corporate boards or management teams directly to discuss concerns with transparency and/or performance on ESG factors". (Page 4) "Exercising Proxy Votes Proxy voting is an important component of our engagement process. Our Proxy Voting Principles and Guidelines set out how the CPP Investment Board is likely to vote on a range of issues (available at )" (Page5) "Responsibilities and Reporting Responsible investing activities are reported quarterly to our Proxy and Engagement Committee and to the Board of Directors. The Proxy and Engagement Committee comprised of senior management and chaired by the President and CEO, approves responsible investing strategies and activities. The CPP Investment Board is committed to public transparency of our responsible investing activities, including timely disclosure of our proxy votes. We currently produce an annual Report on Responsible Investing, which provides a detailed review of our activities. Please refer to the Responsible Investing section of our website for a copy of this report and current information on our responsible investing activities (www.cppib.ca)". (Page 5) National Pensions Reserve Fund (Ireland) "The National Pensions Reserve Fund was established in April 2001 to meet as much as possible of the costs of Ireland's social welfare and public service pensions from 2025 onwards"
NPRF is a UNPRI signatory. Extracts from the NPRF website:
"Responsible Investment PolicyAs an investor in over 2,000 companies worldwide, the National Pensions Reserve Fund Commission believes that environmental, social and governance (ESG) issues impact on long-term investment performance. With this in mind, the Commission is developing and implementing a Responsible Investment policy in a manner to be consistent with the Fund's statutory investment policy as set out in Section 19 of the National Pensions Reserve Fund Act 2000, which is to secure the optimal total financial return provided the level of risk to the moneys held or invested is acceptable to the Commission. The Commission's policy will also be consistent with the United Nations Principles for Responsible Investment (UNPRI), to which it was a founding signatory in April 2006 along with some of the world's largest institutional investors. The aim of the Principles is to integrate consideration of ESG issues into investment decision-making and into active ownership practices. The Commission commits to being an active signatory by both contributing to and drawing on the resources available to it through the UNPRI. The Commission believes that sustained and focused dialogue with company management can be an effective way for long-term shareholders to bring about positive change. As a responsible and active investor, the Fund will act primarily through engaging with companies and through exercising its voting rights across as many investee companies and markets as is practicable. Active ownership is undertaken through a specialist engagement and voting overlay provider, Hermes Equity Ownership Services. International best practice, including that formulated in the Hermes Principles, forms the basis for the Fund's voting and engagement with companies and the Commission will monitor these with a view to continued customisation for its own specific needs. The Fund works closely with Hermes and oversees its activities through regular monitoring and reporting. The Commission believes that it is consistent with prudent investment management to incorporate ESG factors into investment research, analysis and decision making. The Fund will encourage its active investment managers to incorporate material ESG factors into their investment process and will require information on these issues as part of its regular review process. The incorporation of ESG factors will become one of the criteria considered when evaluating bidders for new investment management contracts. The Fund is also a signatory to the Carbon Disclosure Project (CDP), a global mechanism whereby investors encourage companies to disclose their greenhouse gas emissions to investors. In addition to the United Nations Principles for Responsible Investment and the CDP, the Fund will consider participating in other industry-wide collaborative initiatives on ESG issues. The Commission will report regularly on its developing responsible investment policy and activities, including a quarterly summary of how it has exercised its voting rights. The Fund will also endeavour, wherever possible, to report on its engagement activities while taking into account the importance of confidentiality when trying to bring engagement with companies to a successful conclusion. The Fund's Responsible Investment policy aspires to best practice and will be regularly reviewed by the Commission. However, active ownership and the incorporation of ESG issues into the Fund's investment and operating framework is a long-term project requiring further refinement and development. The Fund will be taking further actions as its capacity grows and as the wider investment industry develops its understanding and practices relation to ESG issues and opportunities." TIAA –CREF (US) Pension scheme for "the academic, medical, cultural and research fields" TIAA –CREF is a UN PRI signatory. Extracts from "Socially Responsible investing at TIAA –CREF, Integrated strategies for influencing positive change, 2008 Update" Available at: "Shareholder advocacy and corporate engagement TIAA-CREF exercises its shareholder rights by seeking to influence the ESG policies of the companies in which we invest. We employ this strategy across TIAA-CREF’s entire portfolio, not just in our socially screened offerings." (Page 1) "TIAA-CREF views shareholder advocacy and corporate governance as essential parts of our fiduciary duty. Our Corporate Governance Department, along with the trustees of TIAA and CREF, works to advance high standards of corporate governance, strengthen shareholder rights and influence the ESG policies of the companies in which we invest. TIAA-CREF engages with companies on issues that may pose economic risks or impact long-term shareholder value. Topics of engagement include shareholder rights, governance practices, and social and environmental issues." (Page 4) "Proxy voting: a right and a responsibility As an equity investor in publicly traded companies, we exercise our rights as shareholders by voting on proxy proposals brought before portfolio companies. We make independent voting decisions on a case-by-case basis, in keeping with policies approved by the TIAA and CREF Committees on Corporate Governance and Social Responsibility. In addition, we exceed regulatory requirements and standard industry practice for disclosing proxy voting records. We post our proxy votes on the TIAA-CREF website on an ongoing basis throughout the year-typically within a few weeks after each shareholder meeting in which we vote-not just once per year in a summary filing. To view TIAA-CREF’s proxy voting records, visit http://www.tiaa-cref.org/about/governance/ "(Page 6) |
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| ©Parliamentary copyright | Prepared 13:29 on 15th March 2010 |