Why I...

December 17, 1999

... believe ethically responsible investment will benefit academic pensions

David Chynoweth Chief executive of the Universities Superannuation Scheme, which has assets of nearly Pounds 20 billion. Last week it announced plans to strengthen its stance on ethical investment.

There are many reasons why pension funds should monitor closely the business practices and socially responsible corporate policies of companies in which they invest.

There are the issues of principle concerning ethical and environmental practices. Also, from a strictly professional investment viewpoint, a company that shows scant regard for public opinion on sensitive issues is unlikely to succeed long-term in today's world. Socially responsible investment makes good financial sense.

The Universities Superannuation Scheme invests for the long term for the simple reason that our liability to pay pensions and benefits to our members will not, on average, arise for at least 12 years into the future. It is in our financial interest to monitor the way in which companies control their activities.

It pays us to invest in well-managed companies with a long-term future. We believe that they have a better chance of achieving success if they pay proper regard to the law and to social and environmental issues in the countries in which they operate.

The challenge for us is always one of balance. There are USS members who are naturally very concerned about investments in companies whose activities they deplore. Others are equally concerned that USS sticks to its legal duty to invest for maximum returns within approved levels of risk and that the fund maintains a broadly diverse range of investments.

How do we reconcile these apparently divergent views? The legal position is clear: we cannot conduct a moral crusade. But we are assisted greatly in our task by the sheer size of the USS fund. We have nearly Pounds 16 billion worth of equity investments, which enables us to punch our weight and use our influence with companies to greater effect than would otherwise be the case.

A glance in the financial press reveals that the largest ethical fund is smaller in total size than USS's largest single holding in just one UK public company. When we talk with companies, they listen.

Today no properly run public company, or fund manager, is unaware of the importance of public opinion. Reputation has a huge impact on the share price and value of a company and cannot be ignored.

The management committee of USS has decided to strengthen our stance in this very important area. We are committing greater resources to our investment monitoring and research, including the recruitment of specialist advisers and we are doing this for sound reasons.

Interview by Helen Hague

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