Responsible Investor

a lot of people who were very sceptical about it and looked back at the Cowan versus Scargill legal judement which said they couldn’t take account of these issues because they weren’t financially relevant. Pension funds are starting to move on from that and having done their homework they are starting to see that these issues are financially relevant and so it becomes a fiduciary duty. What’s holding the pension funds back is the assumption that it isn’t financially relevant. Certainly when you look at the investment level, one step down from the administrators, there is a deep scepticism that remains that making any changes will impact heavily on their daily lives. One reason that doesn’t happen is because they are all motivated on a short-term basis. It’s very difficult, from a human behavioural standpoint, to get a fund manager that is interested in an annual bonus to take an interest in a long-term issue like climate change. Other than perhaps as a driver of business models or theme-based investing, they are not really going to be concerned about investing in a company with huge carbon emissions because there is no near-term impact. That’s what fund managers who are not involved in socially responsible investment will tell you. The incentive structures are wrong and that’s why long-term issues get dismissed.
Responsible Investor: Aren’t these issues really the responsibility of governments and regulators, not pension funds?

Alex van der Velden: Governments have a very clear role to play, but the difference for pension funds is that they ultimately manage money that belongs to a wider set of stakeholders, and in the case of some of the larger funds that money belongs to the general public, which does care about these issues. If you’re now in a situation where the research shows that it’s financially relevant and that these are financial risks for the schemes, and you have a situation where the members are concerned about these issues, then it becomes very relevant for the scheme to be clear about this have thought about these issues.
Responsible Investor: How successful have you been in persuading pension funds to change their approach and can you give any examples?
Alex van der Velden: What’s very interesting is that the approach of getting pension funds to compare themselves with each other has been a huge catalyst for change. To date I think the tally is that we have persuaded about £820bn of investment capital to adopt responsible investment practices. What does that really mean? It means you have groups starting to disclose their voting records for the first time and disclosing their investment holdings. That starts to introduce the level of transparency which will bring accountability, not just to the public, but to pension fund members. In an information vacuum there can’t be any oversight.

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