My Lords, the Government fully support the highest standards of corporate governance and ethical behaviour and believe they should contribute to better company performance by helping a board discharge its duties in the best interests of shareholders. Nonetheless, we believe that a non-prescriptive approach to developing policies in this area is the way forward.
The current legislation already requires a scheme's statement of investment principles to include a declaration of the extent to which social, environmental and ethical considerations are taken into account in its investments.
My Lords, research from FairPensions shows that only one in three of our top 20 UK pension funds publishes the positive actions that they take to manage financial risk associated with social, environmental and corporate governance assets. Will my noble friend help shareholders in the vital role that they perform in protecting those assets—and, ultimately, our financial risk as a nation—by obliging pension funds and their investment intermediaries to publish openly these positive actions that are taken alongside the stated policy of investment?
My Lords, this is a very important issue. We know, in particular, that research indicates that companies perform better when their activities are monitored by shareholders. The Government have put in place the investment governance group to encourage best practice in investment-related governance. One of the six main principles that it promotes relates to responsible ownership. This is aimed at requiring trustees to adopt the Institutional Shareholders' Committee's statement of principles on the responsibilities of shareholders and agents. It also requires that trustees should report periodically to members on the discharge of such responsibilities.
My Lords, where do the Government see the members of the pension funds, and the pensioners, in this? This reference is to the middle men. What about the responsibility to the members of the pension fund in these important matters?
My Lords, it is the role of the trustees, under their fiduciary duty, to take account of members' interests. It is the trustees' role in particular, as guardians of that interest, to take account not only of strict and short-term financial returns on investments, but the wider context. That is the right connection with members.
My Lords, among the social considerations must surely be the fate of elderly people. What can the Government do to make sure that the benefits arising from these schemes are sufficient to provide the elderly people who will look to benefit from them with a sufficient standard of living?
My Lords, that is a little removed from the original Question, but it is a very important issue. As we have discussed extensively, the Government's strategy in relation to pensions is to put in place a clear underpin through state provision while recognising that, because of demographics, people will need to be responsible for topping that up through private sector provision. Therefore, with regard to the whole framework of pension provision, the deregulatory review and the protection from the Pensions Regulator and the Pension Protection Fund are all components of encouraging private sector provision to sit alongside the state pension.
My Lords, the Minister will remember very well our discussions on last year's Pensions Bill, which, inter alia, investigated and made lawful the activities of the Personal Accounts Delivery Authority. The subject of ethical investment came up on several occasions during our discussions. Is his expectation that PADA will have an ethical investment fund now being worked upon?
My Lords, the noble Lord may have attended the seminar in January set up by PADA to focus on this very issue of socially responsible investment. Following on from that, PADA issued in May a broad consultation document seeking views on the advice that it should give to its trustees on the approach to investment. I think that the cut-off date for the consultation is August so it is still very much work in progress.
My Lords, bearing in mind that pension funds and institutional funds are influential owners of most of the companies soon to be subject to Defra emissions guidelines, does the Minister agree that those guidelines should be extended to their investment portfolios, which has been done very successfully by a major pension company in Australia?
My Lords, the noble Lord is right: the Defra emissions reporting guidelines are out for public consultation. They are expected to be published by October. These guidelines explain how an organisation should measure its corporate footprint as a first step in helping it to improve its emissions management. Those are very important data that one would expect would influence shareholders, be they trustees or others, in their engagement with companies. The purpose of the consultation is to seek views on the guidance. As with all consultations, the views of those who respond will be given full and careful consideration by the Government before any final decisions are made. Therefore, it would not be appropriate for the Government to pre-empt where that consultation may lead.
My Lords, I declare an interest as a National Health Service pensioner. As regards people with public service pensions who have received letters to say that we have all been overpaid for years and that our pensions will be adjusted—as I understand it, that has not worked too badly—what would be the position if an elderly person was in a difficult position through having something changed retrospectively? What is the general policy on this issue?
My Lords, I do not have the details of the issue that the noble Baroness raises. I imagine this would principally be an issue for the trustees. However, I am happy to look into the specifics of that and write to the noble Baroness.