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Pensions Bill

moved Amendment No. 112ZDA: 112ZDA: After Clause 66, insert the following new Clause— ““Pension investments: crimes against humanity, genocide and war crimes The trustee corporation, and anyone appointed by the trustee corporation to manage the investment of pension money, may disinvest or sell, or not purchase or invest in, securities issued by persons whom the trustee corporation determines on reasonable grounds conducts, or has investments in, business operations that are associated with the commission of crimes against humanity, war crimes or genocide, the content of which is defined in the Rome Statue of the International Criminal Court and adopted into English law by the International Criminal Court Act 2001 (c. 17).”” The noble Lord said: I hope it will be for the convenience of the Committee if I speak also to Amendment No. 112ZDB. I do so in the context of my strong support for the Bill and its purposes. At the outset I pay tribute to the Aegis Trust and other organisations that do much effective work in this sphere of public policy. The Bill is designed to respond to the needs of the vulnerable in our society. It clearly should not do so on the backs of vulnerable, exploited or oppressed people elsewhere in the world. Either the Bill is about equality, dignity and fairness or it is not. Such principles have universal application or they are not principles at all. The door to the principles of the amendments was opened by the noble Lord, Lord Skelmersdale, on the previous amendment. Indeed, it is ajar in Clause 70(2)(e). The first amendment in this group would confirm that trustee corporations are allowed to disinvest pension money from companies associated with crimes against humanity, war crimes or genocide. The second would require the trustee corporation to have a written policy on ethical investment, covering such issues as environmental, social, human rights and good governance practices. This would be more than is currently required under the statement of investment principles in the Pensions Act 2004, which simply requires investors to state whether they have an ethical investment policy. Let me be clear. I am not talking about mandatory principles which investors must take into account. The amendments require investors only to have an independent written policy covering the ethical considerations which motivate their investment decisions. There are three reasons for these amendments. The first, and in some ways the most important, is legal. At present, trustees and institutional investors are not sure beyond doubt that they are permitted to take into account a company’s human rights or environmental record when deciding whether to invest in a corporation. This uncertainty stems in part from a trend in the case law which has tended to underpin the requirement that institutional investors are bound by their fiduciary duties always to act, first, in the best interests of the beneficiaries and, secondly, to be prudent in their financial evaluation of investments, always taking into account the highest rate of return at the lowest risk. Where that leaves ethical matters in the spectrum of considerations is far from clear. The Pensions Act 2004 allows investors to indicate in their statements of investment principles what, if any, ethical considerations are being taken into account, but this is entirely voluntary. It suggests that investors may take these issues into account but does not clarify whether they may move beyond profit maximisation to take such ethical considerations into account in addition, unless the trust’s mandate specifically mandates such a policy. Many investors and trustees still believe that they are required to maximise financial returns on an investment-by-investment basis to the exclusion of all other considerations. Read carefully, however, the law seems to require trustees to act for the proper purpose of the trust and not for extraneous purposes. As long as the best interests of the beneficiaries are not compromised, trustees may take ESG considerations into account. The amendments, while confirming and clarifying the situation would, I hope, encourage investors to engage with companies in which they hold shares. Recommendations from major shareholders will certainly turn a corporation’s thinking towards ethical standards. Investors themselves also need a safe harbour in the event that they do not invest or decide to disinvest because a corporation is involved with the commission of crimes against humanity, war crimes or genocide. As long as the investor acts prudently, and in the best interests of the beneficiaries, and as long as returns can still otherwise be maximised and risk minimised, disinvestment from such corporations should surely represent a safe and responsible investment decision. Investors should not have any lingering doubts and fears that they may face civil, criminal or administrative action because consideration of ESG issues was part of their decision-making process. The second reason is policy. The amendments are entirely in keeping with the United Kingdom’s commitments to corporate social responsibility, as evidenced, for example, in the sustainable development strategy of 2005, the White Paper on international development in 2000, the international convention on social and economic rights, the United Nations Convention on the Rights of the Child, the Kyoto protocol and subsequent international undertakings on global warming, not least those at the recent G8 summit in Japan, and the European Union code of conduct on international arms sales. To be consistent with those commitments, the personal accounts system should surely achieve and exceed worldwide best practice in responsible investment. The amendment would enable ethical investment to be part of the strategy of the United Kingdom’s largest public pension fund; it would be an imaginative lead to society as a whole. There would be a clear mandate to the trustees and appointed fund managers to engage with companies on environmental, social and governance issues. By contrast, without the provision, the fund, and with it the United Kingdom as a whole, will remain a Goliath in the fight for a fairer world. The third reason is financial. There is much evidence that the effective management of environmental, social, human rights and governance—ESG—issues can have a positive impact on investment reforms and risk management and therefore become a financial benefit rather than a financial cost. It has been demonstrated that ethical good governance and transparent corporate practices can assist in achieving stable returns and long-term profit growth. That has been seen in the sphere of pension funds. A good example is the Co-op ethical fund, which has a more than commendable record among the all-share funds in recent times. Of course, socially responsible investment is of more and more significance in the value of the reputation of the individual corporations. Indeed, increasing attention is now being given to the alleged negative part played by some corporations and their foreign investment in fuelling human rights abuses across the world. Examples have been the abuse of workers and sweated and child labour in the clothing industry and the representational damage to some of the clothing giants. Another example has been the controversial part played by some of the oil giants in Burma, Sudan, Africa and Latin America. Zimbabwe has given recent grounds for concern in this respect. There is no need to list the corporations by name; they know very well which they are. There is no doubt whatever that the cost to them of such behaviour will be significant. Responsible investors work with corporations to help them to future-proof their profits by, for example, limiting the negative consequences of poor governance, lax safety standards or climate change for their business. Before concluding, I should identify the limits to my amendments. They do not propose that institutional shareholders should have free rein in making investment decisions. They are a focused guide to investors to evaluate ESG considerations when exercising their fiduciary duties to maximise profit. In the context of the rigid guidelines imposed on investors by that fiduciary duty, they simply underline their legal right to take their preference into account in accordance with the written statement of ethical principles. The realities of globalisation mean that our choices and decisions affect the lives of people elsewhere in the world more directly than ever before. That is why globalisation makes it imperative that we give our attention to issues that previously too often fell below the moral radar. That is why our investment practices must accordingly change. However, I repeat that both amendments are focused and proportionate to their objectives. They are not mandatory and simply allow investors to take ESG issues into account. The vital well-being of our pensioners—I take second place to no one in my support for that objective—should never be dependent on the violation of human rights abroad, the degradation of the environment, the acceleration of global warming, irresponsible arms deals and corrupt corporate practices. It would be deplorable if it did. I shall listen very carefully to what my noble friend has to say in response to these amendments. I shall do so in the hope and, dare I say, anticipation that he will endorse the need to move convincingly forward. I beg to move.