John Simpson: Members must push management for an ethical and social investment policy
The public sector is usefully served by the actions of NILGOSC, the public sector pension fund managers for more than half of the employees of the public sector.
It is an effective method of giving what should be a secure means of collecting the pension contributions of over 100,000 people and, using professional expertise that is available to a significant organisation, to deliver enhancement of the pension's savings of its members so that future pensioners can receive the best possible pensions. NILGOSC must invest its assets, the members' savings, with best professional advice.
If NILGOSC invests its assets by deliberately choosing to invest on criteria that knowingly eschew investments that would earn good returns, then the members would have a strong argument to make that this was a breach of trust.
For interest groups who want to argue for policies to allow only ethical or socially worthy investments, the short answer is that external interest groups cannot, and indeed should not, have a power of veto over the Trustees of NILGOSC who must act with discretion within the terms of the Governance rules.
The critical tests for NILGOSC are, first, would the investment be legally acceptable and, second, would the investment be within the terms of its Governance rules.
Pension funds face continuing criticism from individuals or campaign groups to try to persuade pension managers to - for example - avoid fossil fuel investments, avoid investments in gas exploration such as fracking, avoid tobacco products, avoid arms related suppliers. The critical response is that none of these possibly undesirable investments are illegal. If there is a public interest argument, then Government legislation might be expected. If the Government is not ready to impose legal restraints, then - within the pension fund rules - investment decisions can be made with priority being for the financial benefits of the pension fund and its members. The important conclusion in a discussion of ethical or social investment policy in organisations like NILGOSC is that members may wish to act collectively by giving the managers' guidance through rule changes introduced at events such as annual general meetings.
That type of policy change will put the management of the funds to a more appropriate test evaluating the merits of pension enhancement against the merits of fewer investment options.
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Ethical and social investment criteria may be worthy but should not be in the gift of pressure groups.
John Simpson is an economist