---

Pensions Bill

My Lords, this is an entirely sensible and necessary Bill. As such, I warmly welcome it. There is just one respect where an opportunity has been missed and where the Bill could be strengthened. That concerns socially responsible investment and how it will relate to the new personal pensions plans being drawn up under the Bill. I hope that my noble friend will be able to deal with this when he replies. In the United Kingdom and beyond—both domestically and internationally—great attention is being devoted to socially responsible investment. Almost every major institutional investor and international organisation has had to consider the promotion of good governance, sustainable development, human rights protection and climate change. This is in response to rapid growth in transnational corporate activity and recent scandals. Many companies of course have extensive operations around the world. Sadly all too often we hear of how some corporate operations have involved environmental degradation, human rights violations and social instability. Our laws do not govern corporate activity abroad, so corporations are not prevented from exploiting volatile conditions to maximise profit. To their considerable credit, many institutional investors would certainly prefer not to invest in corporations that profit from human misery. Yet there is considerable confusion in the investment community about the extent to which investors can take human rights and environmental, social and governance issues into account when taking investment decisions. There is surely a great opportunity for the Bill, which is designed to create one of the largest pension funds in Britain and by extension a powerful institutional investor, to give an imaginative lead in clarifying the legal position. For this opportunity to be seized, two amendments are necessary. First, institutional investors, charged with investing funds under the new personal pension plan scheme, should be required under Clause 10 to sign up to the United Nations principles on responsible investment—UNPRI, as they are known for short. The UN principles were drawn up as a toolkit for investors to use when considering environmental, social and governance issues—ESG—in their investment decisions. The principles are not prescriptive. They are voluntary and aspirational, and do not dictate what should be invested in, or where and when specific action is necessary. Secondly, institutional investors charged with investing funds under the new personal pension plan scheme should be able to disinvest from or not invest in companies which can be seen from credible information available to the public to have links to crimes against humanity, war crimes or genocide, as defined in the Rome statute of the International Criminal Court and adopted into English law by the International Criminal Court Act 2001. The UNPRI have already been debated extensively in the Commons both in Committee and on Report, where the Government’s objections to their inclusion boiled down essentially to concerns of cost and simplicity, financial returns for investors and the need for the Personal Accounts Delivery Authority—PADA—to be as free as possible to draw up its own policy on socially responsible investment. Most reasonable people agree that the public pension scheme should be as clear and simple as possible on the costs, system and choices available under the scheme. Signing up to the UN principles would not be contrary to that aim. The evidence suggests that the costs of doing so are relatively insignificant, involving the employment of a quite small number of staff to examine the environmental, social and governance issues that arise and perhaps a subscription to research services. They are also proportionate, considering the good returns that can be achieved with ethical investment. Rather than damaging the rate of return for investors, paying attention to ESG issues in investment decision-making can improve returns. Last year, the Co-operative Society’s ethically invested fund was the best performing fund in the United Kingdom all-company sector. Mainstream investment can, by contrast, make catastrophic mistakes, as we have sadly seen in the cases of Enron or WorldCom. These mistakes might well have been avoided had there been greater scrutiny of the corporate governance of those companies. It has been widely acknowledged that there will be a default fund, and a limited number of alternative funds, administered under this scheme. One of these would, it seems, be administered under Sharia law. If that is permissible, why not also have one administered under the UN principles with regard to international human rights law? In the other place the Government apparently suggested, by implication at least, that ethical investment based on religious belief is more important than ethical investment on a non-religious basis. Surely that must be highly questionable. Moreover, SRI is entirely consistent with government policy in other areas, including sustainable development, particularly related to Africa; protection of human rights domestically and internationally; and tackling climate change. Surely it is counterproductive for the Government to try to address those other issues while they defend the right of their public pension scheme to invest in companies that make these problems more acute. The Government have said that they do not consider PADA, the pension scheme, to be the appropriate body to be covered by the UN principles and that this should be the responsibility of the trustee board itself, once it is appointed. However, between now and 2012 PADA will be the authority that will draw up the whole basis on which personal accounts are to be administered. Surely there should be a clear commitment to SRI from the beginning. I reiterate that the UN principles are not prescriptive and are merely a toolkit for investors to use in the decision-making process. The business case has already persuaded many asset owners and managers, with approximately $10 trillion of assets under management, to become signatories to the UN principles. Currently, the UK Pension Protection Fund, the French Fonds de Réserve pour les Retraites and the New Zealand Superannuation Fund are all signatories to the principles. All are large national schemes. It is clear to me that there is a heavy responsibility for the Government to take a similar lead with what will eventually be the UK's largest pension fund, especially given that some UK pension funds and a number of major UK asset managers are already signatories. The safe-harbour amendment, as with the UNPRI amendment, is permissive rather than prescriptive. It protects investors from legal action in the event that they choose to disinvest from companies with links to disturbing breaches of international human rights law, crimes against humanity, war crimes and genocide, as defined in the Rome statute of the International Criminal Court. I need hardly draw the House's attention both to the vital necessity to protect and promote human rights worldwide and to the increasingly critical attention given to corporations working in developing countries which do not have regard for international human rights law in their operations. Crimes against humanity, war crimes and genocide can be among the most horrendous breaches of international human rights law. I believe that it is necessary to make it legal for trustees and investors to exercise their judgment in these narrowly defined areas of international criminal law. The Government have repeatedly expressed their commitment to promoting and protecting human rights worldwide. For example, the Prime Minister has described Darfur as, "““one the greatest humanitarian disasters of our time””." Yet as the Aegis Trust—which has been doing so much focused work on Sudan, and to which I am very grateful for its help in preparing for this debate—has stressed, western investors, including those in the United Kingdom, continue to invest in corporations working in Sudan which do not benefit ordinary Sudanese civilians, which demonstrate no corporate social responsibility regarding the Darfur crisis, and which continue to provide the Sudanese Government with revenue that can then be used to carry out their policy of ethnic cleansing in Darfur. Surely, as the Aegis Trust and others argue, if the Government are truly committed to the ending of the crisis in Darfur, they should want to ensure that UK investment is not fuelling that crisis. Such an amendment would encourage and reward good business practice in relation to breaches of human rights, particularly in developing countries, and thus protect the most vulnerable people in these societies. It would also help to clarify an area of socially responsible investment that is currently unclear, namely whether and when disinvestment is appropriate and permissible. Some experts have argued that modern portfolio theory makes disinvestment permissible. However, trustees and investors remain nervous because of the uncertainty over the applicability of old case law to modern investment practices. The Government have suggested that the burden of the cost—which I have already argued would be minimal and proportionate—would fall on the poorest in our society. I hope that this amendment would achieve the protection of the most vulnerable people in the world, who are subject to the worst human rights violations. The vital security of our own pensioners in retirement—and I take second place to nobody in my commitment to how vital that is and believe I have shown that it will still be protected—should surely never come at the expense of the world’s most vulnerable, deprived and abused people. I hope my noble friend and his colleagues in government will look favourably at what I propose.