Any Other Business: It is natural in a democratic society to expect your voice to be heard. In pension schemes this is channelled through the member-nominated trustee, but when it comes to seeking your members’ views, how much is too much?
Back in 2013, Harvard University famously decided not to divest from fossil fuel investments in response to protests from students and other members of its community, opting instead to “use our voice not to ostracise [fossil fuel] companies but to encourage them to be a positive force both in meeting society’s long-term energy needs while addressing pressing environmental imperatives”.
Now a campaign called Vote Your Pension is encouraging people to urge their pension funds to vote on shareholder issues related to climate change.
It would be a very real challenge for trustees to collate member views on the ethics of the myriad investment options and to somehow assess such responses and act on some sort of majority view
Roger Mattingly, Pan Trustees
But to what extent should pension schemes take into account the ethical wishes of their members, while still focusing on their fiduciary duty?
Roger Mattingly, director at independent trustee company Pan Trustees, said the law was clear that the main concern of pension trustees should be the pursuit of financial return, but was sufficiently flexible to allow other concerns to be taken into account where trustees have good reason to think members share their view and there is no risk of significant financial loss.
He said: “It would be a very real challenge for trustees to collate member views on the ethics of the myriad investment options, and to somehow assess such responses and act on some sort of majority view.”
Pressure from sponsors
Mattingly said there was little pressure from members of UK schemes to influence investment decisions, but there was a difference between commercial sponsors and not-for-profit sponsors “in that the latter tend to have more concern for the circumstances of the investment, usually related to their charity’s objectives and perception”.
Richard Butcher, managing director at independent trustee company PTL, said trustees may want to listen to the views of their members, but could struggle to do so.
“I don’t think they want to ignore it, but they can’t really take it into account,” he said, adding taking an investment decision based on one member’s ethical grounds could leave the scheme open to legal action from another member.
He said the number of schemes offering ethical investments such as sharia funds – as mastertrust Nest has done – was very small.
Fuelling debate
Fossil fuel investments have become increasingly controversial. Last week, Bank of England governor Mark Carney called for a “climate disclosure taskforce to improve practices”.
Eoin Fahy, chief economist at asset manager Kleinwort Benson Investors, said divestment from fossil fuels was gaining financial as well as ethical support.
He said: “You have convergence of ethical… arguments and a possible, if not probable, financial cause.”
Fahy said investors were beginning to question the value of fossil fuel reserves on company balance sheets, as future government action may prevent access to them, which could profoundly affect the valuation of the company.
