Social investors seeking pension fund transparency

(August 31, 2005) Ottawa’s recent move to review defined benefit pension plans is commendable, but deficient in key areas such as transparency and disclosure, according to the Social Investment Organization.

The SIO has launched a campaign to persuade Ottawa to require employer pension plans under federal jurisdiction to disclose their social and environmental policies and practices, as well as their positions regarding proxy voting.

“Pension plans have a fiduciary duty to take social and environmental factors into account, and to vote their holdings on behalf of their beneficiaries,” said SIO executive director Eugene Ellmen in a recent letter to SIO members.

“We believe that there is a growing consensus in the investment community that social and environmental analysis is an important tool in reducing long-term risk and increasing long-term value,” he adds.

“In fact, the traditional view that these issues are unimportant is quickly becoming outdated; some would say that pension funds are opening themselves to legal liability by ignoring these issues.”

Social and environmental analysis is an integral part of a well-managed portfolio, the SIO says in its submission to the Department of Finance.

“A growing body of evidence shows that corporations with positive social and environmental records can have superior stock performance over the long term.” Socially responsible stock indexes, such as the Domini Social Index in the U.S. and Canada’s Jantzi Social Index have outperformed their benchmarks, the SIO notes.

On proxy voting, the organization says that many pension funds either fail to vote their shares, or routinely support management on shareholder resolutions.

In addition, the SIO points out that the Canadian Securities Administrators has established new rules requiring mutual funds to disclose their proxy voting policies and to keep records on how they vote their shares in the companies held in their portfolios.

“The corporate scandals of the last few years have underlined the importance of vigorous proxy voting by institutional investors,” the SIO says.

“Greater public scrutiny of investment policies and voting may not have prevented abuses like Enron and WorldCom but it would have made them much less likely by making pension funds and other institutional investors more conscious of their investment and voting practices,” Ellmen adds.

Ellmen says that although the consultation involves only pension plans regulated by the Pension Benefits Standards Act, it’s important because some of the country’s largest pension plans are involved. “Progress in this area will mean progress in the future.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com