A new responsible investment league table reveals a wide divide between schemes
Responsible investing is often regarded as a question of definition. The oft-repeated line is that it is difficult to define exactly what responsible investing should entail. Does a scheme exclude tobacco stocks, or even companies that profi t from tobacco sales? And what about indirect exposure through passive funds?
Luckily, investor engagement charity ShareAction has ranked the largest occupational schemes and auto-enrolment mastertrusts through a combination of analysing responsible investment practices and assessing the transparency of publicly available information.
Importantly, the rankings don’t focus on whether funds screen ‘ethical’ investments in or out of portfolios but how well investors address environmental, social and governance (ESG) issues and engage with the companies they own.
The BBC and BT schemes top the table
ShareAction’s rankings reveal a startling gap between the UK’s largest corporate pension schemes and between rival auto-enrolment providers. The BBC and BT schemes top the table (see below), scoring 35 each out of a maximum 40 points while the bottom five funds – Rolls-Royce, GlaxoSmithKline, Barclays, Tata Steel and BAE Systems – managed just six points between them.
You have schemes with parent companies that take corporate responsibility and sustainability really seriously but don’t do anything at all
“One striking thing was that some schemes take responsible investment really seriously and are committed about letting members know how they approach ESG risks,” ShareAction’s chief executive Catherine Howarth told Pensions Insight.
“And then you have schemes that are equally large and with parent companies that take corporate responsibility and sustainability really seriously but don’t do anything on this at all.”
Unfortunately, the disparity between funds was not confined to occupational schemes. While Nest (National Employment Savings Trust) achieved a healthy score of 27.5, enough to place it 8th overall, mastertrust rivals NOW:Pensions and The Pensions Trust’s SmarterPensions managed a paltry nine each.
The huge benefit of a public ranking is that it does focus minds
That said, ShareAction’s accompanying report noted the funds’ poor showing “seems attributable to their relative youth and current small size”, with Howarth adding that “the pension providers who are going to explode in size through auto-enrolment are more engaged than some of the big, old DB schemes”.
The rankings have already made an impact. Howarth revealed that one of the worst performing schemes, which had not wanted to take part in the survey, has since approached ShareAction in an effort to improve its reputation. Howarth said: “The huge benefit of a public ranking is that it does focus minds.”
Asset managers are next in the charity’s sights, with another league table planned for publication later this year. They should heed the lessons of the pension schemes: ignore such initiatives and risk public embarrassment.