When ethics wins the pension fund debate

December 17, 1999

Guy Hughes describes the staff

campaign to force the Universities Superannuation Scheme to rethink where it invests its money

The Universities Superannuation Scheme announced last week that it will be the first big pension fund in the United Kingdom to adopt a socially responsible investment policy. The announcement has wide-ranging implications for Britain's investment community and for higher education. The impact will be widely felt in the City, sending investment professionals scurrying to dictionaries to look up "ethical". It will pave the way for other pension funds, including the universities' own funds, to take similar action.

The announcement was the result of a sustained two-year Ethics for USS campaign by university staff and the student campaign organisation, People & Planet. Its genesis lay with a handful of USS members outraged that their money was being used to finance activities they found morally unacceptable.

They questioned the morality of tobacco investments and objected to profiting from the arms trade. Amid the controversy over Shell's role in Nigeria and the hanging of Nigerian human rights activist Ken Saro-Wiwa, many were shocked to discover their money was supported the oil company - in fact it was USS's largest investment.

But as individuals they were told that it was not possible, legally or practically, for ethical considerations to play a significant role in the decision-making process of such a huge pension fund. It had to put its beneficiaries' financial interests first.

The campaign was launched in 1997 with People & Planet providing the impetus and resources to link USS members with similar concerns. It argued that responsibility comes with ownership.

USS is the third largest pension fund in the UK, worth almost Pounds 20 billion. As a major shareholder, it owns huge chunks of the companies in which it invests. Campaigners argued it was morally irresponsible for USS to ignore the negative impacts of these investments. Business activities are, after all, focused on, and often justified by, the need to make profits for shareholders.

They challenged the assumption that social responsibility is inconsistent with successful management of a major pension fund. USS is bound by certain legal constraints linked to making enough money to support staff in their retirement. However, a sound long-term investment strategy should not favour major polluters. It is financially prudent to watch out for companies operating in ways that exploit people and planet, risking a public backlash that could damage their investment performance.

Ethics for USS argued it was both morally desirable and financially sensible to ensure investments do not have negative social and environmental effects.

Before long the Association of University Teachers gave its support. While local associations spread the word among their members and actively recruited supporters, the union's three nominee directors on the USS board began to pursue ethical issues.

The breakthrough came with positive proposals from the campaign for an ethical investment policy that the pension fund could legally adopt. USS accepted nearly all of the proposals and will now pursue an "active" investment policy using its considerable influence as a shareholder to pressurise companies that do not meet best practice on social, environmental or ethical issues and to seek policy changes.

USS will also take steps to improve public awareness by revealing all of its 2,000 investments on its website. It will allow interested groups, such as Ethics for USS, a consultative role in developing the new policy.

Many questions remain unanswered. How will USS pressurise companies? How will it determine the standards of corporate behaviour it will work towards? What happens if a company does not respond positively? Pension fund members will be watching carefully over the coming months to see how USS takes this forward.

Many universities have individual investment funds to generate income and provide pensions for staff who do not qualify for USS membership. These funds, which are worth billions of pounds, make similar investments to their larger cousin and in some cases explicitly base their policies and practices on those of USS.

The Ethics for USS campaign provides encouragement and an effective model for pension scheme members who no longer want to profit at the expense of others. It may not be long before all university investment funds start to come under staff pressure. It is only right that the academic community should be at the forefront of this progressive movement.

Guy Hughes is a campaigner with People & Planet. For details:

www.dundee.ac.uk/accountancy/csear/ethics4uss

www.usshq.co.uk

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