UK pension funds lag their peers in the rest of Europe when it comes to having responsible investment policies referencing labour rights, according to a study by the International Transport Workers’ Federation (ITF).
The study was motivated in part by the union’s concern that although progress had been made with respect to incorporation of environmental, social, and governance (ESG) factors by institutional investors, social issues are often overlooked.
It reviewed the responsible investment policies of the 100 largest European pension funds and providers.
Almost two-thirds (63%) of the sample – including funds in the Netherlands, Sweden, and Denmark – referred to international standards including labour rights such as the International Labour Organization’s core conventions and the UN Global Compact.
The UK was “the clear outsider”, it found, as it accounted for two-thirds of the funds that did not refer to international standards, and 78% by assets (€684bn).
This finding was significant, the ITF said, because the UK had the largest pool of retirement assets in Europe, and, in contrast to many other European countries, did not provide board-level representation for workers.
“So neither does the governance structure for its public companies provide a formal role for workers, nor do the vehicles of UK workers’ retirement savings formally promote their interests,” it said.
More generally, it said the study’s findings were important because they showed that it was “entirely possible for funds to adopt policies that promote workers’ rights, and that existing fund policies may be shaped more by the country’s political and social culture than fiduciary duty or regulation covering pensions and investments”.
Tom Powdrill, responsible investment coordinator at the ITF and author of the report, told IPE that the geographic split seemed to run counter to the increasingly accepted argument that ESG issues were financially material over the long-term.
“If that is the case, then it seems pretty intuitively plausible that the way you treat people is going to be a factor in the financial performance of investee companies,” he said. “Therefore you shouldn’t really see any geographic split between which investors think labour issues matter and which don’t.
“If that’s a historical cultural hang-up then we should try and change it.”
The ITF said it was working with others in the labour movement to develop ideas about a model pension fund policy on labour issues. It also said that unions could help improve practice on labour issues at pension funds by sharing more information about companies with funds.
Danish labour market pension fund PensionDanmark recently had meetings with representatives of two of the biggest UK trade unions over claims of wage-undercutting at two bio-mass plants in which the pension fund invests.
ITF president Paddy Crumlin spoke of ethics and morals: “[Pension money] is the hard-earned product of hard work and industrial negotiation, and is a deferment of wages that workers decide to make to secure a dignified and decent retirement. It has to be put to work itself in a way that respects that source.
“It is only right that it helps build sustainable individual and collective futures, and that it does so ethically. It is morally inconceivable that it should be invested in companies that attack the rights of the very workers paying towards these pensions.”