In this month’s Off The Record we asked how far pension funds should be involved with the companies in which they invest. This is a particularly pertinent issue in light of recent high-profile media cases on corporate ethical policies, directors’ pay and the involvement of pension funds in extracting shareholder value from the companies they buy into.
And, on the whole, you believe you should play an active role as investors, with 66% of replies answering in the affirmative.
That is not to say you all agree on this one. The remaining respondents all stated that they did not see this as a pension fund duty.
One manager, who says the fund is active as a shareholder, states the reason why: “We feel corporate governance is a factor, which, in the long term, will help improve the company’s results. We consider it also as our fiduciary duty to defend our members’ interests as small shareholders.”
Consequently, 62% of you say that you do at some point use your right to vote at the AGMs or EGMs of companies invested in.
However, once again, a third of replies say they never do so, although one puts it down to “tradition” of non-voting.
Of the active voters, approximately a fifth say they vote on all the issues put to a ballot by the company, while the majority (48%) note that they are selective in what they vote on. And by far the largest number (57%) leave voting – which can be a time-consuming affair – to a third party, although to your credit 38% of you represent yourselves in the show of hands to decide company policies.
Most pension fund managers do this at the touch of a button, although somewhat surprisingly electronic voting still only accounts for 19% of your bidding at shareholder meetings. The post is still used by around 10% to state your mind, while 15% either attend the meeting personally or ensure that a delegate is present.
Those delegating their responsibilities tend to leave this to their investment manager (29%) with only 9% saying that they employ a specialist voting organisation.
Nevertheless, those delegating their responsibilities still tend to give their representatives a mandate on how they should vote, while only 14% leave a free-hand to their proxy. Some responses note that the trustees only intervene when they feel the need to give direction: “We give them a mandate and they must refer to us on contentious issues as we may disagree with how they propose to vote and if we do so it is our view that overrides,” notes one.
A resounding three-quarters of you do believe in principle that you have a duty as shareholders beyond the buying and selling of shares.
Significantly, two-thirds of respondents believe that this should take the form of involvement on ethical or corporate governance decisions, with the same number pronouncing their right to take action to force companies to change an unpopular decision.
Fewer of you, although a not inconsiderable 38%, feel a need to be engaged in strategic questions with the company – one of the key issues flagged up in the recent Myners report on UK institutional investing.
However, this does not on the whole appear to be a subject dictated by any domestic government requirements. Only 20% of funds feel their national regulation is insufficient for them to actually be involved in companies as shareholders.
Numbers are split evenly though on whether funds have written policies of engagement for companies they invest in, with half of the respondents saying they do have guidelines on how to act and the other half eschewing such a proscriptive approach.
Encouragingly though, 67% of you do have a statement of investment principles (SIP) for the fund – one of the major recommendations of most pension reform around Europe. A quarter of these SIPs include social or environmental criteria, you say, while 38% state a position on ethical investment – although it is notable that similar numbers say their SIPs do not touch on such contentious issues,
One fund chief states the case for a less rigid view: “Managers should be taking account of this when selecting well managed companies. Well managed companies are more likely to have the correct approach to these issues.”
Good point… but there are a lot of conditional elements in what you are saying…. Perhaps the commitment of funds to engage in the more political questions is not quite what it seems.
A single respondent says the fund actively screens investments against those that do not fit with its SRI criteria. And only a handful point to a trawl of companies with positive engagement on social/ ethical issues before they invest.
So what are we to make of it all? Such a difficult area as SRI/corporate governance certainly throws up a mixed bag of responses. But perhaps the most informative overview of the issue can been seen in responses to the question of how much pension funds actually invest in SRI specific assets. Sixty-two per cent of pension funds say they have no assets with a particular SRI label in their portfolios.
Perhaps that is to be expected. SRI is a notoriously difficult principle to pin down . However, a number of schemes do appear to have strong beliefs about including SRI within portfolios.
Around 5% of respondents say they place 5–10% of stocks in specific ethical/green mandates. But, even more surprisingly, 15% say they have more than 10% of their assets invested in SRI briefs.
Maybe we should point out that there were an unusually high number of responses from pension funds in Scandinavia this month!
Nonetheless the figures show a marked gap between those schemes pushing ahead in the socially responsible arena and the remainder who consider it more of a non-issue. The conclusion drawn is that this is a debate with little middle ground – you either are SRI or you’re not!
Curiosity led us here at Off The Record to play devil’s advocate a little and put the above questions into some kind of topical context.
We asked whether, in the light of the debate over the production of generic HIV drugs by companies in South Africa and the ensuing legal action pursued by pharmaceutical multinationals, you would consider taking any steps on the fund’s investment in these companies.
Opinions were fairly divided, with 29% of responses saying they would and 38% stating that they would not take any action.
None of the funds, however, indicated that they would sell the stock immediately, although two-thirds said they would if shareholder value was being affected by the furore. The same number said they would certainly try to influence the company’s action.
However, when we asked if you thought investment banks should withdraw their interests from companies in the media spotlight – such as in the recent case of the Huntingdon Life Sciences group in the UK – your answers were less equivocal. Ninety per cent of responses to the question thought this was not the correct policy.
One respondent who did consider this was the right course of action was brief in defence: “You’ve got to put your money where your mouth is.”
The questions seemed to crystallise some opinion though, with one manager setting out the fund’s position: “This is an investment decision not an emotional one. Will this company add value and ensure the pension fund can meet the needs of the members (and I am not saying these companies will). I may personally have views about buying such a company but it should not affect my responsibilities in meeting the needs of the members. Each trustee or person involved in such a decision has differing views on the topic and they are all emotional.”
As a parting shot on the subject I don’t think we can get clearer than that!