At a time when SRI is becoming part of the mainstream investing culture, Denmark's PKA Pension Funds has shown itself to be ahead of the pack. It is this proactive approach which has won it this year's award for SRI and corporate governance.
Several years ago, PKA decided to redefine the ethical guidelines for its investments. It is PKA's firm belief that social responsibility will add to a company's long-term performance, and that ethical considerations must be part of the general economic analysis of an investment.
A process of consultation included all the main stakeholders in the fund and involved more than two years of targeted work. The most important result was that PKA members wanted a more proactive strategy for SRI than the usual negative screening approach.
The resulting blueprint for investment that was unveiled in 2005 included several strands.
First, the eight PKA Pension Funds launched a public-private partnership, Private Equity New Markets, along with the Danish foreign ministry and the Paedagogernes Pensionskasse. PKA aims to invest around €70m in private equity in new markets, primarily in less developed countries.
This project is part of a wider foreign ministry strategy to involve industry and commerce in the overall transfer of resources to developing countries. The ministry believes that venture capital is as important as government aid in the financing of education, roads and hospitals in these countries.
And from PKA's point of view, the foreign ministry's participation was essential for the provision of a local presence, local knowledge and training. The ministry's involvement also reduces the political risks that accompany investments in new markets and developing countries.
Further, in the future the implementation of the UN's Global Compact will help to provide a framework within which sustainable and socially responsible investing can flourish.
The new private equity fund is being run by Danish investment house BankInvest, which has a long track record in emerging markets. The fund will operate over 10 years and it will invest in local non-listed companies needing capital for expansion.
Although this fund is a direct result of PKA's new approach to SRI, other planks in its strategy are already well established.
With other investors, it already runs two other companies that support ethical projects.
Invest Environment was established in the early 1990s with the aim of investing in Denmark's growing environmental industry. The emphasis is on recycling, pollution control and environmentally correct production methods. PKA says that a clear lesson from those investments has been that exit strategies are an important part of the investment analysis.
The other joint project is Eco Invest, a company investing on a commercial basis in organic food production and distribution, primarily to schools and kindergartens.
Within PKA's own structure, three of its member funds have set up their own company to develop real estate projects in the realm of social welfare, working with Danish local authorities. So far the project includes 29 administration sites, treatment centres and housing for socially vulnerable groups. The facilities are owned by the pension funds and let to local authorities and private institutions on long-term commercial contracts.
In addition to the basic objective of more proactive investing, PKA's SRI strategy also includes a framework for SRI to be applied to all investments.
The rationale is that the guidelines must be an overall reflection of interests and attitudes that can generally be accepted by its members. But they must also be practical in terms of the day-to-day running of the investments.
The guidelines say that the pension fund must work actively to make investments that take both financial and ethical considerations into account. It must carry out regular screenings of the investment portfolio, providing the board with regular up-to-date information on the results.
There is a ban on investing in companies that violate the UN's conventions on human rights and labour rights, the environment and corruption. The principles within the Global Compact are used as a benchmark. There is also a ban on investment in weapons manufacturers, if this is part of a company's core activities.
The fund's external managers have agreed to adopt these guidelines within the portfolio. PKA operates a permanent screening procedure using the services of the Ethical Investment Research Service (EIRIS) and any contravention of the guidelines is reported to the pension fund boards and discussed with the portfolio managers or the company itself.
Details of the guidelines are shown on the fund's website,, which also shows a complete list of companies in which the PKA invests, as well as current and historical return figures.
In order to create an exemplary pension scheme, PKA has published a set of principles on corporate governance, which also apply to all investments. They cover the consistency and evaluation of board behaviour, the qualifications of board members; access to company information; executive remuneration; voting at AGMs and dealing with non-financial risks.
In 2004, PKA was a co-founder of NVIR, a network set up by over 50 Danish investors and large companies and PKA's chief executive officer sits on NVIR's board.
The network's purpose is to create a common framework for discussions of company ethics and non-financial reporting. Last year, NVIR published recommendations on how such discussions could be initiated within companies.


PKA Pension Funds has shown that SRI investing does not mean shying away from commerce. Instead, with the support of the Danish foreign ministry, it has taken the private equity concept to developing countries to fund health and education projects. With other partners, it actively invests in the environmental industry, and develops social welfare infrastructure projects. It has set out a set of strict ethical guidelines for all investments, and as part of its drive for transparency, has published these on its website along with the names of the companies it invests in. And it has set out principles for corporate governance, which are also on the website.