Positive Impact of Social Investing Cited in Study of European Pension Funds

A new report written by the investment coordinator at the International Transport Workers’ Federation (ITF) found that European pension funds – built to provide a decent retirement for working people – are acting to protect those workers’ rights ahead of retirement in the form of responsible investment policies by pension funds. But they can be doing more.

In the paper, Who’s Responsible? Pension Funds and Respect for Workers’ Rights,” written by Tom Powdrill, responsible investment coordinator at the ITF, he noted that pension fund investing has a current and future role in protecting pensioners’ financial security by investing in companies that are currently engaging in ethical business practices.

For example, if a pension fund is investing in companies that violate workers and consumers’ rights or endangering the environment, it means retirees cannot enjoy their retirements to the fullest extent.

The paper examined 100 of the largest pension funds in Europe that supported workers’ rights and looked at their responsible investing policies. The paper found that most pension fund policies in many countries, such as the Netherlands, Sweden, and Denmark, refer to international standards that include labor rights, such as ILO (International Labour Organization), core conventions and the UN Global Compact. These funds represent EUR 2.68 trillion (or $2.93 trillion) in assets, or 63% of the total studied.

However, almost one-third of funds, representing nearly EUR 900 billion ($985 billion), make no reference to international standards. The paper said “the UK is the clear outsider,” accounting for two-thirds of the funds in this group by number, and four-fifths by assets (EUR 684 billion or $747 billion) that do not refer to workers’ rights. “This is particularly worrying given that the UK has the largest pool of retirement assets in Europe, and the second largest in the OECD,” the paper said.

“Another key finding was the power and prevalence of the ‘capital strike’: where funds respond to concerns about companies’ treatment of workers. We identified funds in this sample alone, representing the huge sum of EUR 2 trillion ($2.19 trillion) who refuse to invest in Wal-Mart, while six funds, representing EUR 287 billion ($314 billion), won’t touch Rynanair,” Powdrill said in the paper.

Of the funds studies, Powdrill said 42 funds had policies to exclude stocks if they “failed to comply with the fund’s policy or are unresponsive to engagement.” Almost one-quarter (24) of the funds were found to have excluded either Wal-Mart or Ryanair because of labor-related concerns. Of these, 17 excluded just Wal-Mart, one excluded just Ryanair, and six excluded both.

ITF president Paddy Crumlin said in a press release announcing the report,   “pension money is not gifted. It’s 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. This new research has identified much good practice, but it has also revealed a gap that the pension fund industry must move to close.”

The paper says this is the key form of social responsibility and it is an implicit recognition that pension funds play a part in assisting workers both before and after retirement.