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IPE special report May 2018

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UK unions to use pension assets for governance

UK – The head of the main trades union body has signalled that unions will use their pension assets to make sure that companies are ethically managed.

“So if I have a message to leave you with, it is this - that trade unions will try and play our part in developing a responsible investment culture,” said Brendan Barber, secretary general of the Trades Union Congress.

“We will endeavour to use our financial assets actively to ensure that companies are well-run and responsive to questions of social responsibility,” Barber said in the annual Social Investment Forum lecture.

He likened the pensions industry to disgraced WorldCom head Bernie Ebbers, who pointed to charts of the company’s sahre price when asked about corporate governance issues.

“Well hasn't the attitude of much of the pensions industry to corporate governance and social responsibility been much the same, but on a larger scale?” Barber asked

“It too has been guilty of pointing at charts by way of deflecting questions about ownership, only the charts have CAPS or The WM Company written on them.

“It is an attitude doomed to fail, as three years of a bear market and a series of corporate scandals and implosions attest.” He said that pension beneficiaries “do not inhabit a theoretical bubble or a moral vacuum”.

He said the TUC was sceptical about the impact of the principles drawn on ownership by the Institutional Shareholders Committee. “A year on, feedback from our trustees suggests they are often absent at various stages of the investment process.”

He called for more active ownership by pension funds with passive portfolios. “Tracking an index means by definition that the fund is locked into certain stocks. They cannot trade their way out of trouble.”

“The TUC's view therefore is that trustees appointing passive mandates must take a close look at the resources managers devote to addressing governance and CSR issues.”

The union movement had made “initial forays” into of institutional investment. “But they mark the beginning of a serious commitment by unions to responsible stewardship of the huge pools of capital created by our funded pensions system.”

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