UK - The National Employment Savings Trust (NEST) has ruled out the creation of an ethical board and is unlikely to exclude companies from its investment universe, their head of investment policy has said.
Paul Todd added that he believed an active engagement policy was the more viable approach for NEST, while working closely with larger European pension schemes, such as the Swedish AP funds and the Universities Superannuation Scheme was also being considered.
"Some of the feedback we've been getting is that, rather than looking to screen out thousands of companies and sectors, it should be focused on companies where there is a positive impact," he explained.
Todd argued exclusion would not be the way forward for the new defined contribution scheme's default funds, but that a more selective approach could be applied to both the proposed religious and socially responsible investment funds.
"What we want with an ethical or socially responsible fund is to make sure it is differentiated from the default fund," he said. "We do expect there will be some form of screening."
He added that investments in areas of weapons or tobacco would be excluded as a way of achieving this.
While he ruled out the existence of an ethical committee, such as the Ethical Council of the Swedish buffer funds, which regularly excludes companies from its investment universe, Todd said NEST's investment committee would be charged with considering the matters.
He added: "For all pension funds, it's not acceptable anymore to take no interest in it. With the attention on NEST, our investment committee and trustees will be taking it very seriously."
He said that due to its long-term investment structure, with many members in the future enrolled for as many as 50 years, it was important for them to think as a long-term investor.
"We've got an investment horizon of 30, 40 or 50 years with some of our members, so things that may not seem pertinent to the next two to three years [are] certainly worth examining to see what the impact on the portfolio is in the long term."
Referencing the proposed engagement strategy, he said: "You are not going to change things overnight, but, over time, as you work with other institutional investors, you can influence things to improve long-term shareholder value.
"But it's about long-term value, rather than any particular moral position that trustees take."
Mark Fawcett, NEST's chief investment officer, who has ruled out investments in hedge funds and commodities for the scheme's immediate future, concurred.
"We'll take corporate governance extremely seriously," he said. "There is long-term value in that. Exactly how that is implemented at a different stage of our evolution is undecided."