There is growing recognition that the social and environmental performance of a company can affect its risk profile and reputation, and hence the value of its shares and business prospects. By adopting ethical/socially responsible practices, pension funds can make a significant contribution towards persuading companies to improve their social, environmental and ethical behaviour.

Public demand for ethically invested pension funds
More than three quarters of adults in the UK think their pension fund should operate an ethical policy according to a survey conducted by EIRIS and the market research firm, NOP Solutions, in 1999. It revealed that 77 per cent of pension fund members believe that their pension scheme should operate an ethical policy, whenever it can do so without reducing financial return. Another survey demonstrated similar levels of support for ethically invested pension funds. A SustainAbility/MORI survey in June 2000 found that nearly two thirds of pension scheme members wanted their trustees to actively apply social, environmental and ethical criteria to their investment decisions. This survey also found that three out of four scheme members want pension fund trustees to use their voting power to encourage greater environmental, social and ethical accountability from the companies in which they hold investments.

• "… the extent (if at all) to which social, environmental or ethical considerations are taken into account in the selection, retention and realisation of investments;
• and their policy (if any) directing the exercise of rights (including voting rights) attaching to investments".

This does not mean that trustees have to take account of social or environmental concerns within their investment strategies, but they are obliged to state whether or not they do so.

The impact of this is twofold. On the one hand it has raised awareness of the implication of ethics among trustees. And on the other hand it is raising awareness amongst pension scheme members. On discovering that their pension does not have an ethical policy as stated in the SIP, many pension fund members have started to lobby trustees.

There are a number of ethical funds that are linked to personal pension products. See The EIRIS Ethical Fund Selector for more details.

Group personal pension
Group personal pensions work in the same way as individual personal pensions except that they are bought in "bulk" from insurance companies or fund managers. They are normally bought by employers who may deduct contributions from pay and perhaps contribute too. Here you can ask your employer if they will consider providing an ethical option.

A stakeholder pension works in a similar way to most personal pensions where you use your own money to build up your pension fund. Your scheme invests your contributions in stocks and shares and, when you retire, you use this fund to buy a pension from a pension provider.

Stakeholder pensions are available from insurance companies, banks, investment companies and building societies. Other organisations such as trade unions may also offer stakeholder schemes to their members. If you are employed, your employer must provide you with access to a stakeholder pension scheme by 8 October 2001. Exceptions to this include employers that have fewer than five employees and employers that offer an occupational pension scheme for all their employees to join within one year of them starting work.

The providers of the following stakeholder pension schemes informed the UK Social Investment Forum that they offer the choice of a socially responsible investment option. This description should not be taken as financial advice or seen as endorsement of any particular company or product.

West Yorkshire Pension Fund
The West Yorkshire Pension Fund (WYPF) administers the Local Government Pension Scheme in the West Yorkshire area. The Local Government pension scheme is UK-wide and provides pension rights largely for local council employees.

Universities Superannuation Scheme
Rob Gray, Professor of Accounting at Glasgow University, is convenor of the "Ethics 4 USS" pressure group that has successfully persuaded the Universities Superannuation Scheme (USS) to introduce an ethical investment policy. The pressure group was formed by students and academics concerned about the same issues.

"A lot of us interested in sustainable resources realised that the financial markets were a major issue here", explains Gray. "Then, as the USS began to publish its dominant holdings we also realised that, as individuals, our pension money wasn't where our mouths were. There seemed to be a number of groups writing to the USS at the same time, asking the same questions, so we decided to act together. This was just as the British government decided it would bring in a requirement for funds to disclose whether they have an ethical policy, so we were all pushing against a rolling stone.

"The effect has been stunning. First we raised a lot of awareness among academics. Then the USS responded positively, and has adopted an ethical policy. It has also recently appointed someone to be responsible for the ethical policies of the companies invested in." Rather than disinvesting, the USS intends to work with companies, pursuing a policy of engagement. "We will see how it goes. It's a step at a time, and a major shift for a large pension fund. It is very exciting to see how far we have all managed to get in just two or three years," says Gray.

For more details on the Ethics 4 USS campaign see www.fairpensions.org.uk