Socially Responsible Investment and Corporate Governance

The Fund aims to be in the forefront of Socially Responsible Investment and to act as a responsible shareholder.

Our policy on social, environmental and ethical matters is based on dialogue and engagement rather than exclusion.

The Lothian Pension Fund has ownership rights to over 600 UK stocks. We have appointed F&C, an external investment manager, to engage with companies on our behalf on issues such as sustainability, environmental impact, human rights, employee welfare, third world labour exploitation and climate change. We use F&C to encourage best practice and will, if necessary, vote against companies' management to highlight concerns.

F&C have produced a detailed analysis of all the engagement activities undertaken on behalf of the Fund. Some of the major events include:

Engaging the banking sector - where F&C published a study showing how ten leading banks have taken environmental factors into account in their lending practices. The aim is to identify good practice and act as a measure of progress.
Payment disclosure - after extensive engagement with participants, F&C have taken a lead role in trying to curb the mismanagement of government finances in relation to tax and contractual payments in exchange for natural resource licences.
Environmental risk in the oil and gas sector - a study was produced which measured the impact of key environmental risk factors on the share price of oil and gas companies.

We are currently working with F&C to identify methods of measuring the contribution that our socially responsible investment policy has on investment returns.

Corporate Governance

Corporate Governance is a major part of socially responsible investment - it involves engaging with the companies with regard to board structure, remuneration of company directors, internal controls and shareholder rights.

On top of F&C engaging with companies on our behalf, the Fund has employed the services of Pensions Investment Research Consultants (PIRC) and invests in a Hermes Focus Fund.

PIRC carry out research, engage with companies and produce Corporate Governance reports for all stocks in the FTSE350. Contained within these reports are recommendations for voting at company AGMs - on resolutions regarding, for example, the re-appointment of directors, director remuneration and audit fees. Scottish companies are engaged with directly by the Fund, using the PIRC reports for guidance. PIRC vote on behalf of the Fund at all other company AGMs (and extraordinary meetings if they arise). You can find out more about PIRC on their website.

The Hermes Focus Fund specialises in investing in companies that have suffered from poor Corporate Governance with the aim of making improvements.

Working together

One Fund's vote, no matter the size, is not sufficient to bring about change and so the Lothian Pension Fund has taken a number of collective measures. We maximise our shareholder influence by joining with other bodies. We are a member of the Local Authority Pension Fund Forum, one of such bodies. We have a direct investment in a Hermes managed Active Corporate Governance Fund, which seeks to turn around companies where corporate mismanagement has occurred. It has employed F&C to provide a socially responsible investment overlay, a product which can use the entire client base of F&C to ensure constructive engagement can actually happen.

Responsible for the future

The Lothian Pension Fund supports the initiative that companies specifically involved in an identified "problem" area should publish their environmental policy and should appoint a dedicated board member as responsible. Their role will include the monitoring, measuring and reporting on the implementation of that policy.

Further, we have asked all our investment managers to get involved in setting standards for company disclosure on social and environmental matters and to lead the debate within the industry. Investment managers are encouraged to look positively on companies that follow best practice so long as it agrees with the Fund's fiduciary duty.

Our officers actively engage with Scottish companies on any environmental or social issue which may breach any of the Fund's guidelines.

Report - 3rd quarter 2007 [PDF]
Report - 2nd quarter 2007 [PDF]
Report - 1st quarter 2007 [PDF]
Report - 4th quarter 2006 [PDF]
Report - 3rd quarter 2006 [PDF]
Report - 2nd quarter 2006 [PDF]
Report - 1st quarter 2006 [PDF]
Report - 4th quarter 2005 [PDF]

Corporate Socially Responsible Investment Policy [PDF]
Corporate Socially Responsible Investment Policy [Word]

The Local Authority Pension Fund Forum (LAPFF) promotes corporate social responsibility and high standards of corporate governance.