Co-operative Pension Fund: The good, the bad and the unclear

By Colin Baines, Co-Op Pension Power team member

My engagement with the Co-op Group pension (PACE) began in May 2015, seeking information on how the pension was assessing and managing the financial risk associated with climate change. It took until October 2015 to get a response following much chasing and advising of legal obligations, and it was poor. In March 2016, I wrote to each Trustee individually and working with ShareAction, ClientEarth and other Co-op pension members, we started to make progress.

The good — taking action on climate risk

My March 2016 letter, and those of other Co-op pension members, spelt out to Trustees that they are under statutory and common law duties to consider material financial risks to pension funds. This included considering climate change risk and that outsourcing management doesn’t relieve them of these duties. This had an impact. In Q2 2016, Trustees engaged the pension’s investment managers to determine how they were factoring climate related risks.

This was an excellent result. However, in assessing the investment managers, much emphasis was placed on how many were members of the United Nations backed Principles for Responsible Investment and how many published statements of compliance with the UK Stewardship Code. This is not adequate as evidence of risk management as involvement can be aspirational and membership commitments unenforced.

In further good news though, we were also advised in December that the pension’s investment adviser, Mercer, had been commissioned to undertake a full climate change assessment.

This is superb progress from where we were just a year ago!

The bad — responsible investment policy and shareholder engagement

In the Co-op pension responses to me, much was made of its Responsible Investment Policy. However, no evidence could be provided that it was actually being implemented, indeed there was much evidence to suggest otherwise. In the Co-op’s October 2015 letter, it stated “the Trustee delegates engagement with investment managers and shareholder voting to its appointed investment managers”, suggesting a fundamental lack of awareness of its own RI Policy. Here are a few key policy commitments that it seemed to be ignoring:

  • “The Trustee may, from time to time, raise specific ESG (environmental, social and governance) issues with investment managers and seek a response…and may instruct managers in relation to specific ESG issues”
  • “The Trustee…may seek to use more direct engagement approach with investee companies”
  • “The Trustee will use direct engagement, where is considers necessary”
  • “The Trustee will also review annually whether to employ specialist resource to undertake ESG engagement on behalf of the Scheme”

I highlighted these concerns in my March 2016 letter and a response in May advised that direct engagement had been undertaken on tar sands and human rights. Well, as the person who led the tar sands engagement as an Ethics Adviser and Campaigns Manager within Co-operative Financial Services at the time, which included engagement on behalf of the pension, I know this took place in the period 2008 to 2011. Reference to human rights engagement probably dates to the same time. Their response also stated that they have “not felt it necessary to directly engage as yet”, despite the RI Policy being in place since 2010. This strongly suggests that no shareholder engagement has been taking place at all over the past five years — and the policy had only been in place for six!

Over coming months, it will be interesting to see whether Trustees actively instruct managers to engage on the issues identified in the revised policy as priorities — “protection of the environment” and “labour conditions and equal pay”.

For much of last year we were told the RI Policy was being reviewed and that “this review will lead to enhancements in the policy”. In early 2017, it was made public. Unfortunately, with regard to engagement, it was not enhanced but weakened as all the policy positions above on direct engagement of investee companies had been removed. Instead the revised policy relies upon investment manager engagement. Over coming months, it will be interesting to see whether Trustees actively instruct managers to engage on the issues identified in the revised policy as priorities — “protection of the environment” and “labour conditions and equal pay”. It will also be fascinating to see whether it adheres to its new, very welcome and robust position that “if we have significant ongoing and unresolved concerns, we may decide to sell our shares or other assets and/or change our fund managers”.

Only time will tell whether the revised policy will be implemented any better than the old one.

The unclear — divestment

My March 2016 letter also asked Trustees to consider divestment from fossil fuels. This also prompted welcome action, as a couple of weeks later the pension analysed its exposure to high risk sectors, including oil and gas, mining and heavy industry. In May, I was advised it was considering the “implementation of exclusion lists” and I’m pleased to say the new RI Policy states it will, where possible, avoid investing in indiscriminate weapons, the transfer of arms to oppressive regimes, bonds issued by oppressive regimes and importantly “companies involved in extractive industries with poor environmental standards”. However, it is not clear yet whether this means the pension fund will divest from its investee fossil fuel companies Shell, BP and BG Group.

I’m pleased to say the new RI Policy states it will, where possible, avoid investing in indiscriminate weapons, the transfer of arms to oppressive regimes, bonds issued by oppressive regimes and importantly “companies involved in extractive industries with poor environmental standards”.

Looking ahead

Myself and other Co-op pension members, with the support of ShareAction, will continue to engage with our pension to ensure responsible investment commitments are kept. We want to continue the pressure on the pension fund to adhere to Co-op values and principles and seek to use our pension power to help address the big challenges we face, from climate change to inequality. Join our Facebook group ‘Co-op values & pensions’ to get involved and be kept up to date with progress.

We will update this blog as developments with the fund occur and after our meeting with the fund at the end of March 2017.

Thanks Colin! You can find out more about the Pension Power network here, or get in touch here.


Originally published at shareaction.org on March 16, 2017.

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