Comment: ShareAction’s Catherine Howarth says it is not in the best interest of pensioners for their savings to be financing polluting industries, which is why it is proposing changes to UK pensions legislation
The system that invests our pensions is letting us down. Pensions exist for our benefit, to give each of us greater security, but today our pension investments are failing to make us more secure. Instead, many of the economic activities financed by our pensions are driving us across planetary boundaries, one after another, whilst jeopardising public health and life expectancy in the wider population.
The good news is that this problem is fixable. We just need to reset the rules.
I no longer believe that we served our members’ interests to the full extent possible. The problem? Pensions law stood in our way.
My own journey into the investment system started almost 20 years ago. I was working in the east end of London, employed by a wonderful organisation called London Citizens. We’d just launched a campaign for living wages and were focusing our efforts on contract cleaning in the NHS and in Canary Wharf. Barclays and HSBC were constructing mighty new headquarters on the wharf, which presented us with an opportunity to seed a big idea.
I bought five shares in HSBC and got hold of Barclays shares thanks to a great aunt in Northern Ireland. At Barclays’ annual general meeting, hands sweaty and voice distinctly wobbly, I took hold of the microphone and asked the directors to commit that everyone working in their new HQ would earn a real living wage, including the cleaners.
Despite my obvious nerves, or perhaps because of them, my question was graciously received. A meeting was agreed to talk it over. I left the AGM feeling distinctly hopeful. A year later, after much bold community action and ingenious manoeuvring to play HSBC and Barclays off against each other, Barclays became the first big company in the UK to write living wage requirements into contracts for cleaning and other support services. Shortly after, HSBC followed suit.
That experience woke me up to the vast potential for positive change that investors can catalyse. Intrigued, I decided to put myself up for election as a pension trustee, making my case to fellow members of my pension scheme by explaining my high hopes for responsible investment. Happily, this appealed to enough of them, and I found myself on the board.
The trustees I worked with were scrupulously conscientious, but looking back more than a decade later, I no longer believe that we served our members’ interests to the full extent possible. The problem? Pensions law stood in our way.
The law states that trustees are duty-bound to invest other people’s money in their “best interests”. This is a powerful principle and certainly one to hang on to.
UK pensions law defines our best interests with reference to just one objective: optimising risk-adjusted financial returns
However, UK pensions law defines our best interests with reference to just one objective: optimising risk-adjusted financial returns. Our best interests have been put in a tightly defined financial box, and the people tasked with investing our savings are discouraged from thinking outside it.
That might be fine if pension investing happened in a vacuum. But it doesn’t. Our pension savings are invested in companies that have profound impacts on society and the natural world.
Consider air pollution, which causes 40,000 premature deaths annually in the UK. Most of these deaths are among older people drawing on a pension. The leading causes of air pollution are road transport, industrial emissions, burning fossil fuels and construction.
Companies in our pension funds have a hand in all these activities, and in each case, there is a less-polluting alternative.
But less-polluting alternatives, let’s be honest, cost companies somewhat more and can marginally reduce financial returns to their investors. So, trustees must ignore the potential effects of air pollution on the lives of their own members.
Not so long ago, it was against the law for women to vote. We look back now and it is blindingly obvious that wasn’t OK. But it’s useful to remember just how acceptable, indeed how entirely natural, that situation seemed to people who ran the country a hundred years ago.
Today, the status quo in pensions law is perfectly acceptable, indeed seems entirely natural, to many in parliament and many who run our pensions schemes. Our task is to change that.
The need to reduce emissions, and halt ocean acidification and deforestation are compelling reasons to reset the rules in our pension system
I don’t see why we shouldn’t make it happen. After all, vast numbers of people have pension savings. This isn’t a niche issue affecting only a few. It’s everyone’s concern. It’s our money and we have every right to object to it being invested in ways that threaten our well-being, now and in the future.
Last year, ShareAction published a model parliamentary bill, entitled Responsible Investment Bill. Under this proposal, securing financial returns would remain the central objective of a pension scheme's investment strategy, but trustees would also be required to address the impacts of their investments on the security and wellbeing of their members and on the ecological health of the world those members live in.
As highlighted by COP26, the need to reduce emissions, and halt ocean acidification and deforestation are compelling reasons to reset the rules in our pension system. Where trustees and asset managers are motivated by achieving even better outcomes for pension savers, and can show their thinking clearly, they must be allowed to make investment decisions that may make a bit less money or take on a bit more investment risk.
Ever since my first foray into the investment world nearly two decades ago, I’ve seen many times how investors can be positively influential in driving firms to be ethical corporations. It’s time to fully unlock that influence by giving the people who look after our savings the legal mandate they need to protect the social and ecological systems that underpin our health and welfare.
Catherine Howarth is CEO of ShareAction, an NGO that coordinates civil society activism to promote responsible investment across Europe.
HSBC living wage Responsible INvesting Bill ShareAction fossil fuels air pollution pensions law