UK – The UK government has said that greater shareholder activism by unions via workers’ pension funds gives them the chance to promote their “wider” social objectives.

The remarks came as the UK’s top union boss said pension funds have given the union movement “enormous” leverage over companies.

Ruth Kelly, the chief secretary to the Treasury, told a conference today: “There is potential for shareholder activism to go beyond the important but narrow area of corporate governance and work to promote the wider social interests of investors.”

She said that union members, via their pension funds, can increasingly influence corporate decision making in terms of social responsibility. “It means the chance to use the pension fund of union members to promote wider union objectives – investing in companies with a good record on workers’ rights, with a focus on long-term value not just short term profit, and with a commitment to dialogue between the board room and the shop floor.”

The role unions can play on corporate decision-making was endorsed by the Trades Union Congress, the UK unions’ umbrella body.

The TUC’s general secretary-elect, Brendan Barber, told delegates to the Fair Shares conference: “It is trade union members through our pensions, insurance policies and other savings who provide so much of the investment capital for British businesses. Indirectly, through the shareholdings of institutional investors, we own these businesses.”

He called for: “Higher standards of trusteeship, clearer fund management mandates, active intervention by investors to tackle corporate underperformance.”

“There are great opportunities for unions here. We can make a real difference. We can help drive the change in the culture of institutional investment.” He said the TUC has a network of 1000 member trustees whose funds have 280 billion pounds in assets. “This gives us enormous potential leverage,” he said.

Kelly said that, while more firms realise the effect of corporate social responsibility can have on reputation and business risk, she was unsure whether socially responsible firms do better financially.

“Do companies which are socially and environmentally responsible yield better returns? The answer at the moment seems to be ‘maybe’.” She cited a study of 65 European stocks, which concluded that returns from ethical stocks were “at least” comparable with more traditional securities.

The TUC says there are conflicts of interest in the institutional investment industry to do with the ownership of firms. And it says the influence that financial institutions have over “the huge collective assets of working people” can be “turned back against the very people whose capital is being managed”.

It says it is “bizarre” that companies can be downgraded by analysts because of their negative view of the liabilities of large final salary pension schemes.