The National Association of Pension Funds (NAPF) has launched a guide to responsible investment, which encourage its members to take factors other than financial returns into account when investing.
NAPF members, who collectively manage £900 billion worth of assets, are invited in the guide to integrate environmental, social and governance (ESG) practices into their investment policies.
David Paterson, gead of corporate governance, said, “There is clear evidence that extra-financial factors can have a big impact on a company’s long-term value, reputation and growth. Successfully bringing these factors into investment decisions can help moderate risk and improve returns.”
The guide also explores individual asset classes and suggests a series of questions to ask to investment managers.
It states, “Pension funds should develop an investment policy which includes an understanding of stewardship objectives and risks.
“This policy should encourage the incorporation of financially material extra-financial risks within investment decisions and the exercising of stewardship responsibilities such as engagement and voting.”
The guide analyses how fixed income, payments of a fixed amount on a fixed schedule, makes up a large proportion of most pension fund portfolios and how the underlying principles of responsible investment apply to both this and equity investments.
Paterson added, “While interest in responsible investment has grown in recent years, we still have some way to go before it could be said to be fully mainstream.
“There is a lot that pension funds can do to help make responsible investment the norm, and we hope that our members will follow the guidelines we have set out.”
In a report published in April, the pensions committee recommended a more joined-up approach to pension regulation. The UK Sustainable Investment and Finance Association (UKSIF) later said the report failed to address sustainable investment.