Louise Rouse, Director of Engagement at ShareAction, argues that when it comes to long term strategy, there is a surprising disconnect between sustainable businesses and their own pension funds.
Corporate social responsibility or, as it is increasingly termed, sustainability, has become a standard feature of UK corporate life. The corporate behaviours defined within these terms are constantly evolving, and the companies who lead on this issue now look beyond corporate philanthropy to corporate strategy. Within corporate strategy, CSR professionals and board directors now see that sustainability is as much about driving long-term commercial value as it is about managing risk.
Unilever with its ‘Sustainable Living Plan’ stands as a leader among UK-listed companies on value driven sustainability strategies. Unilever is, according to its CEO, Mr. Polman, “convinced that businesses that both address the direct concerns of citizens and the needs of the environment will prosper over the long term.”
Marks and Spencer provides another example in leadership. Its Plan A lies at the heart of company strategy and external communications. Marks and Spencer believes that “to succeed over the long term businesses need to make connections with society and Plan A is our manifestation of that. It also makes sound economic, as well as moral sense.”
However, this type of long-term corporate strategy requires the support of like-minded shareholders. In a survey carried out by Accenture and the UN Global Compact in 2010, 766 global CEOs and top executives were asked to identify the crucial change required to effect a ‘tipping point’ “where sustainability is embedded within the core business strategies of the majority of companies globally”. 86% of respondents selected, ‘Accurate valuation by investors of sustainability in long-term investments’. A forthcoming update to the survey is expected to have similar results.
Despite a growing recognition of the relevance of corporate environmental, social and governance (ESG) activities on investment performance and the development of initiatives like the UN Principles for Responsible Investment and the UK Stewardship Code, responsible investment – the integration of ESG into investment activities – is still not sufficiently embedded among mainstream investors to help drive corporate sustainability at a strategic level.
In theory, given their long time horizons, pension funds have a clear interest in addressing the financial risks posed by sustainability issues such as climate change. Moreover, their purpose of providing pensions is not an end in itself, but a means to an end – that of a secure and prosperous retirement. Pension funds should, therefore, feel able to consider the potential impacts of such issues on future retirees’ quality of life as part of their duty to act in their members’ best interests.
Yet most pension funds, including the occupational pensions of some of our leading ‘sustainable’ companies, lag far behind companies in addressing the risks and opportunities arising from sustainability issues. This surprising disconnect between CSR leaders and their own pension funds is rooted in part in the pressing priorities of deficit reduction faced by many pension funds, a delegation to fund managers of dialogue with investee companies and a lack of understanding of the importance of sustainability issues.
CSR professionals within companies and the leaders of the associated pension fund should engage in a dialogue to discuss how sustainability is understood by each and the degree of alignment between them on the issue. Although occupational pension funds are separate legal entities from their sponsoring company, this should not restrict such a dialogue.
For companies interested in understanding and improving investor attitudes to sustainability strategies, its own occupational pension fund provides a natural starting point for sharing knowledge.
Louise Rouse is Director of Engagement at ShareAction, a charity that promotes responsible investment with a track record of persuading investors to increase shareholder activism on environmental, social and governance issues. ShareAction focuses on catalysing a shift within each level of the investment chain, so that responsible investment becomes the norm.
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