Time for a 'plan B' on ethical pension investment

The greenest British high street chains are failing to invest their pension funds in a responsible way. How are we to take them seriously, asks Fred Pearce

Fred Pearce
guardian.co.uk, Thursday 7 May 2009 11.12 BST

Who are the greenest of the big British high street chains? A lot of people would put the Co-op and Marks & Spencer at the top. Certainly the Co-op and M&S would. The environment is a big seller for both of them.
"The Co-operative is one of the world's leading businesses tackling global climate change", says the Co-op. It claims, even more boldly, that "our approach to tackling climate change has been acknowledged as the best in the UK". It is running a campaign with the environment group WWF to oppose tar sands. "Stop the expansion of toxic fuels" is the main headline on the "ethics in action" page of its website.
Meanwhile, in almost every shopping mall in the land, M&S has been filling its front windows with posters about its "Plan A ... our five-year 100-point 'eco' plan" which includes becoming carbon-neutral by 2012. "It's the only way to do business," it says. "There is no Plan B."
Good stuff. I applaud it all. And having in the past tracked down the origins of a range of M&S's products, I can vouch for the efforts they put in to meeting high environmental and social standards.
But there is scant evidence that anybody passed on the good word about these new policies to the pension division of these big companies, which invest the vast pension funds of their tens of thousands of employees.
Last week, the NGO, FairPensions — which campaigns for ethical pension investment with support from Oxfam, WWF, the trade union Unite and others — published its latest survey of Britain's largest pension funds. The top 30 funds are some of the largest institutional investors in the land. They handle the pension savings of 5 million people and have share portfolios worth £350bn. That gives them a loud voice at shareholder meetings and on boards of directors that can determine corporate strategy of dozens of other companies, on everything from investing in tar sands to fair trade.
The good news is that most of the pension funds surveyed agreed that issues like climate change were bound to affect the financial performance of the companies they invest in. The bad news is that only one-third of them had told their fund managers to even consider environmental criteria when investing.
There was "a general disparity between policy and practice," FairPensions noted. "Funds which perform badly on climate change criteria include some sponsored by companies with strong 'green' credentials." It named the Co-operative group pension scheme and M&S's scheme. The latter appeared so embarrassed that it was one of five companies that refused to answer the surveyors' questions.
In the league table compiled by FairPensions, the Co-op scored just 38% and came 14th out of 30; M&S scored 25% and came 18th. Top of the table with 100% were the superannuation scheme for university academics and BT's pension scheme. Bottom were the power company E.On with 7% and five ultra-secretive pension funds about whom the surveyors could find out little – IBM, Unilever, BAe, Lloyds TSB and the Coal Pension Trustees.
Neither M&S nor the Co-op had followed the lead of the BT, BP and the BBC pension funds in signing up to the UN's principles for responsible investments.
How are we to take these companies seriously? The pension funds of the Co-op and M&S have under their control more money than the shops spend each year in buying goods for sale. If they don't subscribe to the front office policies it creates the impression, shall we say, that the front office policies have more to do with marketing than ethics.
And that goes for many others whose glossy reports on corporate responsibility have a black hole where discussion of their pensions investments should be.
Also languishing in the bottom half of FairPension's responsible investing list is Aviva, formerly the Norwich Union. Aviva claims on its website that "our environment policy places climate change at the heart of our strategy to reduce Aviva's impact on the environment". But, according to FairPensions, the world's fifth largest insurance company shows no sign of applying that policy in its pension scheme.
Likewise, Unilever, the conglomerate that makes everything from Surf washing powder to Wall's ice cream. Its website says: "Our commitment to communities and the environment is integral to the way we do business". Maybe so. But its pension fund refused to answer FairPensions' questions and is so secretive that the surveyors could find out next to nothing about whether it made good on those corporate values.
While companies cannot dictate the detailed investment policies of their pension funds, they nominate trustees and clearly have a strong influence on how their contributions are spent. Any company that genuinely regards climate change, for instance, as a vital issue would want to do what it could to ensure its pension funds were invested in a responsible way to reflect that.
Pension funds have had a difficult time lately. But that is not an excuse for ignoring environmental criteria in making investments. Nor for downright secrecy about how they spend our money. Far from it. Environmental constraints are going to loom ever larger in corporate life in future – and companies that are not adapting to that new world will suffer. So will pension funds.
This is not just greenwash, it is also bad investment practice. If "there is no plan B", then why are the pensions funds still acting as if there were?