Panel Discussion: Pension Towards Socially Panel Discussion: Pension Towards Socially Responsible InvestmentResponsible Investment

Socially responsible investment, decent work and pension funds

New Delhi, 3 May 2013

Markus RuckSenior Social Security Specialist

ILO/DWT-New Delhi

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What is Socially Responsible What is Socially Responsible Investment?Investment?

1. An investment process that seeks to achieve social and environmental goals alongside financial objectives (Mercer, 2007).

2. Environmental, social, and corporate governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time (UNPRI).

The rationale of SRIThe rationale of SRI

1. The concern over the ability of public policy to address issues such as environmental degradation and human rights abuses, especially in developing countries, coupled with an acknowledgment that business has the responsibility and financial resources to address these issues.

2. Empirical research showing that investors can increase their portfolio rate of returns by considering ESG issues.

3. The perception in some countries that fiduciary responsibility may and should include wider concerns than financial returns.

4. Public opinion favouring SRI, largely as a result of intense advocacy by lobbying groups. (OECD, 2007)

Five motivations for SRIFive motivations for SRI

1. Ethical reasons

2. Fiduciary duty

3. Financial performance and risk management

4. Public attentions

5. Universal ownership

Investment strategies – Investment strategies – Negative screeningNegative screening

1. Common negative screening themes used by institutional investors

• Armaments and nuclear weapons• Alcohol manufacture and promotion• Manufacture and promotion of hazardous substances, such as pesticides,

chlorine-containing chemicals• Environmentally damaging practices• Poor employment practices• Animal exploitation (for industry, factory farming)• Activities, process or products that have a major impact on climate change

(automobile, oil and gas industry, road building, etc.)• Manufacture and promotion of ozone-depleting substances• Nuclear energy• Gambling• Animal testing (pharmaceutical and cosmetic industry)• Genetic engineering• Tobacco manufacture and promotion• Oppressive regimes• Pornography

Norm-based screening –Norm-based screening –ILO Core ConventionsILO Core Conventions

Eight fundamental ILO conventions that deal with 4 major issues:

freedom of association, non-discrimination, prohibition of child labour and forced labour

1) The Freedom of Association and Protection of the Right to Organise Convention, 1948 (No 87);

2) The Right to Organise and Collective Bargaining Convention, 1949 (No 98);

3) The Forced Labour Convention, 1930 (No 29);

4) The Abolition of Forced Labour Convention, 1957 (No 105);

5) The Minimum Age Convention, 1973 (No 138);

6) The Worst Forms of Child Labour Convention, 1999 (No 182);

7) The Equal Remuneration Convention, 1951 (No 100);

8) The Discrimination (Employment and Occupation) Convention, 1958 (No. 111).

ILO Decent Work Agenda -ILO Decent Work Agenda -Four Strategic ObjectivesFour Strategic Objectives

1. Promote and realize standards and fundamental principles and rights at work;

2. Create greater opportunities for women and men to decent employment and income;

3. Enhance the coverage and effectiveness of social protection for all;

4. Strengthen tripartism and social dialogue.

The ILO Declaration on Social Justice The ILO Declaration on Social Justice

for a Fair Globalizationfor a Fair Globalization

1.The principle of universality of the ILO objectives

2.The recognition of the indivisibility of these objectives – they are “inseparable, interrelated and mutually supportive”

ConclusionsConclusions

1. The question about the future of Socially Responsible Investment amongst pension funds still remains.

2. The most important reason for SRI still seems to be reputation.

3. Negative screening is still strongly represented among the various screening strategies. ILO Core Conventions and the Decent Work Agenda can play an important role as a basis for norms-based screening.

4. SRI will become a major trend among pension fund investment strategies.

5. A further examination of the way in which this trend evolves would contribute to the identification of good practices and to the creation of more efficient methodologies.