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Home / UK and Canadian Pension Fund – Background

UK and Canadian Pension Fund – Background

Comparative Study of U.K. and Canadian Pension Fund Transparency Practices 

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3. Background

It is generally believed that the corporate sector in the European Union has embraced corporate responsibility (CR) to a greater extent than its counterparts in other parts of the world. This is demonstrated by various phenomena such as public attitudes to social and environmental issues (Wheeler, 2003) and the comprehensive reporting many European companies undertake with respect to their social and environmental performance (Wheeler and Elkington, 2001). Moreover, socially responsible investment (SRI) is one of the fastest-growing sectors of the European investment market. According to the U.K. Social Investment Forum, the total value of SRI assets in the U.K. increased from £23 billion in 1997 to £225 billion in 2001 (see Table 1).

Table 1: Total value of SRI assets in the U.K. (£billion)
 

1997

1999

2001

SRI unit trusts

2.2

3.1

3.5

Churches

12.5

14.0

13.0

Charities

8.0

10.0

25.0

Pension funds

0.0

10.0

25.0

Insurance companies

0.0

25.0

80.0

Total

22.7

52.2

224.5

Source: Russell Sparkes, SRI: A Global Revolution, John Wiley & Sons, 2002.
It is possible that growth in SRI assets in the U.K. has been spurred or at least accelerated by amendments to U.K. pension fund legislation, passed in 2000. The disclosure requirement under the amended 1995 Pensions Act means that trustees must declare in their statement of investment principles the extent (if at all) to which social, environmental and/or ethical considerations are taken into account in the selection, retention and realization of investments; and the policy (if any) directing the exercise of the rights (including voting rights) attaching to investments. 5   In this report, we explore the proposition that there may have been a link between inclusion of SEE issues in statements of investment principles in the U.K. and the growth of total SRI investments. We do this by reviewing the social and political drivers of reform in the U.K. and the impact of the reform on the U.K. pension fund industry. And we apply our observations to the Canadian situation. However, we start our examination of the U.K. precedent by considering the legal context for reforms to the U.K. Pensions Act.