Global warming has emerged as one of the major issues this summer because of the devastating floods across the country. Climate change has become an issue impacting on more and more areas of our lives, even Socially Responsible Investment (SRI) and pension fund investments. All treasurers handling local authority pension funds know they must include in their ‘statement of investment principles' their policies on how social, environmental and ethical considerations are taken into account in investment decisions. We all think we know what socially responsible investment is but often the reality is that it is difficult to set out with precision exactly what it means. In practice, trustees have to rely on investment managers to help them with voting policies and building portfolios in accordance with general SRI principles. Practically, if ethical investment can be shown to produce similar returns to other types of investment, a typical pension fund will invest in it as a part of the normal investment process. Otherwise the primary objective is to maximise the return. Trustees must listen to their finance team's advice as they have a responsibility to get the best return on the fund's investments – making sure there is enough funding in the pensions pot for current and former employees. Are maximising returns and SRI mutually exclusive though? Who is to say that SRI investment leads to underperformance. Assessing the impact of factors such as climate change is without a doubt coming more to the forefront of intelligent investing. Investing in businesses which are tapping into the growing public awareness and appetite for ‘green products' will bring its own financial rewards. At the extreme, poor environmental performance can destroy shareholder value. What confidence would we have in a fund manager with minimal environmental knowledge to invest in a company in a high-risk sector – such as oil or gas? The relationship with our fund managers is key. The challenge is that pension funds need to use their financial clout to encourage SRI, encouraging pension and institutional investment managers to make socially responsible decisions that also get the best return on their investments. Our local politicians are quite rightly also interested in the potential impact on council tax, picking up the tab for any financial underperformance on funds. Ealing's pension fund stands at some half a billion pounds so there is always a risk there. Pension funds are essentially about planning for the future – and without tackling important issues such as climate change the stark reality, as the prophets of doom tell us, is that there may well be no future! Richard Ennis is executive director of corporate resources and Nigel Watson is head of strategic finance at Ealing LBC
