DENMARK - An official report in Denmark has concluded pensions institutions can take an ethical stance on investments while still fulfilling their legal duty to get the highest possible return.

The report conducted by Denmark's outgoing Pension Market Council also forecasts the Danish pensions industry was likely to become more involved in the process of investing on environmental and social governance (ESG) ground, than it is at present.

"An examination of the foundation of law shows it is possible for pensions institutions to apply an ethical profile to their investment choice," the report concluded.

"It is vital to ensure the legal requirement to get the highest possible return is met, when ethical considerations are taken into account at the same time. Pension schemes that take ethical considerations in their investment behaviour expect at least a return corresponding to the market.

"Internationally, interest in ethical considerations within investment policy is increasing. This suggests that there will be an increased involvement in this area among Danish pensions institutions," the report said.

The Pension Market Council is a body set up a decade ago to contribute to the debate on transparency of pensions institutions' investment policies. Its report on ethical investment was put together by a working group led by Søren Kolbye Sørensen, director of the Danish Engineers' Pension Fund (DIP).

The ethical investment report is the last task to be undertaken by the Pension Market Council, which is being replaced by the Money & Pensions Panel, a new body given the task of sharpening consumer awareness of financial products.

The Council noted introducing ethical considerations into investment policy faced pensions institutions with a range of challenges, as the report said: "There is no single answer for how these challenges should best be met."

It pointed out there was no clear-cut definition for the concept of ethical investment. "The report highlights that ambiguous terms for 'ethical investment' are used at random - and that this can give rise to misunderstandings," it said.

The report was produced to shed light on four main topics:

The relationship between the ethical behaviour of companies and that of their suppliers; the need for ethical investment policies to be well-documented; how a fund should act when businesses fail to live up to guidelines, and the possible unintended consequence of ethical guidelines.

Looking at the ethical priorities of Danish pension funds, the report included data from industry association Forsikring & Pension, which showed 32 funds had stated environmental considerations were important to them.

This was followed by recognition of the importance of human rights with 29 funds, and of upholding international conventions with 27 funds. At the other end of the scale, avoiding investment in tobacco was supported by just eight funds.

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