Insurance firms `disregard` environmental and social risksTuesday, 12 Jun 2012 by phil | 0 Comments
Insurance firms 'disregard' environmental and social risks
16 April 2012, 17:17
Insurance companies show a "disregard" for assessing the environmental, social and governance (ESG) risks to the value of pensions they provide, a survey by campaign group Fair Pensions has found.1
Aegon was the only insurer out of the ten assessed to have a responsible investment policy. And only Aviva had signed the UK Stewardship Code on engagement between investors and companies.
The government's introduction of workplace pensions from October 2012 is expected to increase the number of people with 'contract pensions' from three million to up eight million. Insurance companies are expected to win a significant share of this market.
Unlike trust-based occupational pensions, such as BT's pension fund or the Universities Superannuation Scheme, contract pensions are not overseen by a board of trustees with a duty to act in the best interests of fund members. This duty includes assessing the risks of issues such as climate change or corporate malpractice to investments made to fund pensions.
This "governance gap" leaves customers with contract pensions "ill-served” and "poorly protected" compared with people with trust-based pensions, says Fair Pensions.
Fair Pensions surveyed the ten largest insurance companies in the UK using data published by the firms and a questionnaire. Only five completed the questionnaire: Aviva, Friends Life, Legal & General, Scottish Widows and Standard Life. Aegon and Prudential said they did not wish to take part. Scottish Life, Zurich and Skandia did not respond.
Fair Pensions found that only Aegon had its own responsible investment policy for pensions. Other companies either referred to policies for their asset management arms, to specific socially responsible investment (SRI) funds or to general corporate responsible policies.
Only Aviva had signed the Financial Reporting Council's Stewardship Code, the corporate governance watchdog's best practice guidelines for investors' engagement with companies.
The survey also showed insurance companies' monitoring of voting and engagement activities is restricted to their own internal investment fund managers. Only Legal & General said it requests voting and engagement reports from external fund managers.
Standard Life was only company to publish information on its fund managers' voting and engagement activities.
Fair Pensions found a lack of transparency over insurance companies' SRI funds. All had only published the top ten holdings, meaning customers could be investing their pension contributions in companies they are ethically opposed to. Standard Life and Legal & General said they would disclose all holdings on request. Fair Pensions said many people might be surprised that oil companies were included in some SRI funds.
Louise Rouse, director of engagement at Fair Pensions, said: “The fallout from the Gulf of Mexico oil spill and the hacking scandal at News International expose the financial relevance of ESG issues. Insurance companies’ apparent disregard for responsible investment should worry savers.”
Among its recommendations, Fair Pensions says the government should require workplace pension providers to sign up to the UK Stewardship Code and the UN's Principles of Responsible Investment. Employers choosing a pensions provider should consider how the candidates manage ESG issues.
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