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Ride the ethical wave

New legislation on socially responsible investment brings to mind the analogy of comparing the reputation of the pension industry to surfing, where both teeter on the crest of a wave.

Surfing is as spectacular in its moments of failure as it is in success. One moment the surfer is a sublime creature riding a breaker but the whole picturecan collapse into a mere, bedraggled mortal.

The financial services industry is facing increased communications challenges with the new legislation on the publishing of SRI. The pension industry, having had a damaging plunge with pension misselling, seems to have weathered the storm and started to mend its reputation. But everyone involved in pensions had better start looking over their shoulders for the next big breaker which could knock them into the water again.

On July 3, under an amendment to the Pensions Act 1995, trustees of pension funds covered by the act will be obliged to disclose their socially responsible investment policy and how this policy is to be put into practice when investments are made.

Currently, this legislation applies only to occupational pensions managed by a trust. However, as a seasoned communications adviser in the field of socially responsible issues, such as health and safety and protection of the environment, I believe it will have far wider implications for the whole financial services industry.

Far from SRI being a cosy matter for discussion between pension trustees and fund managers, it is poised to become the latest cause for environmental and ethical lobby groups to champion. Financial advisers need to start getting clued up on the issue of SRI by pension funds in readiness for the wave of public interest which will build once these powerful pressure groups start to put their weight behind it.

Experience in other industries – such as agriculture (genetically modified crops), food (veal production) waste management (radioactive and other), quarrying, power generation and a host of others – shows that wherever environmental and ethical issues are involved, there is a timebomb ticking away.

When the timebomb explodes, some corporate reputations will lie in ruins. These other industries are far more experienced in these issues and more advanced in how to deal with them. Financial services is lagging behind, with one or two exceptions such as NatWest and Royal Bank of Scotland.

The term socially responsible encompasses social, environmental and ethical considerations. Unfortunately, so far, the Government has not defined these terms and the whole issue is open to attack from seasoned andskilful campaigning bodies such as Friendsof the Earth, animal rights groups, anti-GM protesters, etc.

Friends of the Earth has already entered the fray on this particular issue by promoting a pack for pension scheme members to lobby trustees over ethical investments. Other pressure groups are bound to follow this lead.

So far, environmental and ethical pressure groups have picked off industry sectors tactically. However, with pension funds owning around half of the shares of the FTSE 100 companies, the new requirement to disclose SRI in the pension industry hashanded these pressure groups a strategic tool to drive environmental and social changeacross the whole spectrum of industrial sectors.

Environmental and ethical groups arehighly effective in rousing a groundswell ofpublic opinion towards their own point of view and gaining a sympathetic press. This is normally a single, black and white issue which excludes reasonable debate.

This airing of the subject at a grassroots level, often accompanied by campaigns in the press, will make it inevitable that pension intermediaries will also have to field questions about environmental and ethical performance of pension funds from prospective clients.

The oil, gas, waste management and utilities sectors have already faced this problem. With the internet&#39s capacity to link environmental protesters worldwide, every business sector can consider itself vulnerable.

Some major financial institutions have made great strides towards taking their environmental responsibilities seriously and there arebodies doing plenty of monitoring and draw-ing up league tables – the World Bank Environment Programme, for example, or Business in the Environment and Pensions Investment Research Consultants.

But the big question is how can pension fund managers make sure they achieve a good showing in league tables and reports? It is only by communicating good SRI policies and practice that fund management providers can attract new clients and retain old ones as they become increasingly committed to SRI.

Financial advisers who have good knowledge about ethical pension funds will be able to recommend suitable investments and those who do not know about SRI will start to see their clients migrate to other advisers who do. The best way forward for pension professionals is to learn the lessons of other industry sectors, prepare their case and start now to communicate their socially responsible probity.

As with many other potentially contentious issues, “go towards the sound of the guns” is the best policy to adopt. Do not try to hide as the pressure groups will find you.

By taking on board a commitment to open communications on SRI, all links in the pension supply chain can protect themselves from that unforgivable sin, the skeleton found in thecupboard by someone else.

If the environmental, ethical issue or topic has already been aired in a reasonable and responsible manner, then it remains within the control of the company involved and there is less chance of it being unfairly exploited.

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