An Inconvenient Truth

Neil Copeland

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Now I’ve really heard it all. A colleague has forwarded me an article headed “ACCA calls for climate change code”.

In the first study to examine the attitudes of trustees towards climate change and its potential impact on pension scheme investment, the Association of Chartered Certified Accountants (ACCA) found that trustees are unaware of how their fund managers tackle the issue…..it says. Do these people have no real work to do?

We’re in the middle of one of the harshest recessions on record and part of the solution appears to be that trustees should think about developing a policy on windfarms! So to what extent should trustees take non purely financial matters into account when setting their investment policy?

Well the good news is that saving the planet is not your job – you have a difficult enough role already. It is your job to deliver the best possible return commensurate with an acceptable level of risk. (Actually, maybe saving the planet would be easier!).

But to what degree can or should trustees allow their personal views on non financial issues to influenced the investment decision making process?
Cowan and others v Scargill and others (1984) made it clear that that trustees should not let their own views or prejudices influence their investment strategy.

As the Pendragon Perspective commentary on the case notes:-

“A later judgment (Martin) limited the effect of the case; but it is still the law that large pension schemes must consider all propositions put to them, that acting in a moral fashion is not the function of pension fund trustees, and outside influences of trustees should be eliminated.

The major conclusions however are incontestable: that schemes must diversify; that social and ethical criteria on their own are not appropriate for directing the investments of financial trusts; and that trustees must put aside their own personal views when making investment decisions.”

Now I don’t think the judge was suggesting that trustees had an obligation to always act in a venal or immoral manner, though such an approach could bring some welcome excitement to trustee meetings. You can also find many who disagree with the judgement, but nor should trustees assume that an investment which chimes with their particular world view should be a primary determinant in any decision.

The reality is that investing in environmentally friendly companies and projects for the foreseeable future is likely to reap rewards as there is a clear Government policy to encourage and develop this sector. Any beneficial returns, however, will be the result of the Governments policy and the merits of the particular investment rather than the inherent “morality” or otherwise of a particular investment. Someone once said to me there are only two types of investment, “good” and “bad”. Try and pick the good ones, and if they chime with your world outlook treat that as a bonus.

At least the ACCA had good sense to refer to “climate change” rather than “global warming”, given that the planet has, in fact, been cooling since 1998.

So if I was a trustee, given all the other issues affecting pension schemes at this time, I would hold off jumping on the climate change band wagon until your sure which way it’s going.

Neil Copeland

Post by Neil Copeland

Director, pensions consultant and adviser to trustees and employers on all aspects of work based pension schemes.