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CORPORATE
SOCIAL RESPONSIBILITY
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Statement
of Investment Principles
The
principles governing the investment of assets of the Northern Ireland
Local Government Pension Fund are set out in the Statement of
Investment Principles. The principles state that NILGOSC will take into
account socially responsible investment considerations, provided that
the primary financial obligation to act in the best interests of the
scheme beneficiaries is not compromised..
Link
to Statement of Investment Principles
Responsible
Investment
NILGOSC
believes that social, ethical, environmental (SEE) and corporate
governance issues can affect the performance of investments.
Accordingly, NILGOSC believes that these factors should be taken into
account when managing the Scheme’s assets, subject to the overriding
fiduciary duty to maximise the financial return on investments.
NILGOSC
has developed a Statement of Responsible Investment to outline how such
issues are incorporated into its investment practices. In addition,
NILGOSC has adopted the United Nations Principles of Responsible
Investment as a means of demonstrating its commitment to responsible
investment. A link to both documents can be found below.
Link to Statement of Responsible Investment
Link to UN
Principles of Responsible Investment
Climate Risk Statement
Of all
the environmental, social or governance risks facing investors, climate
change has arguably the greatest potential for widespread impact across
individual corporations, sectors, asset classes and economies. As a
long term investor, a changing climate presents significant long-term risks to the
value and security of pension scheme investments and capital markets
more broadly.
The
changing climate presents a variety of risks and opportunities for
pension fund investors. Investment practices should therefore seek to
protect assets from climate risks such as weather events and regulatory
change, while simultaneously seizing the new opportunities that a
low-carbon economy presents.
NILGOSC has developed a Climate Risk Statement to sit alongside the Statement of Responsible Investment. The Statement acknowledges the importance of climate risk as an investment issue and sets out the steps which will be taken to address it.
Link to Climate Risk
Statement
Corporate
Governance
Corporate governance is a generic term that describes the ways in which rights and responsibilities are shared between the various corporate participants, namely management and the shareholders. It is a framework which ensures that decisions are made in the best interests of shareholders and the public at large, and covers a wide range of issues including management structure, remuneration, reporting and accountability.
NILGOSC believes that, as a responsible investor, it has a legitimate
interest in the management of companies in which it invests.
In 2005, NILGOSC developed a Corporate Governance and
Voting Policy that sets out its expectations for good corporate
governance. By exercising its right
to vote at company meetings, NILGOSC seeks to improve corporate
behaviour by maintaining effective shareholder oversight of the
directors and company policies, a process on which the current system
of corporate governance depends.
NILGOSC commenced voting on its UK shareholdings in April 2006, a
process which was extended to include all global holdings in April 2007.
The number and type of resolutions put to the shareholder
vote differ greatly across the globe, with few countries allowing
shareholders to vote on the breadth of issues currently presented to
AGM’s in the UK. Levels of
disclosure also vary widely, with certain markets providing
insufficient information to allow an informed voting decision to be
made.
NILGOSC accepts that corporate governance practices and best practice
guidelines vary throughout the world. This makes it difficult to
establish a single set of voting guidelines which can be applied to all
markets. Instead, NILGOSC has developed three individual
Voting Policy documents, setting out NILGOSC’s policy on its
expectations for good Corporate Governance in the companies in which it
invests. They further set out how
NILGOSC will vote in order to promote good Corporate Governance in the
UK, North American and other International markets.
The Voting Policies provide a basis for communicating with investee
companies and holding directors accountable for their stewardship of
the company. Proxy voting is a
means of maintaining effective shareholder oversight of directors and
company policies. The policies
represent NILGOSC’s view on what it believes are important elements of
good corporate governance and identify its voting guidelines on
specific issues.
Link
to International Voting Policy
Link to North American Voting Policy
Voting
NILGOSC
has appointed a specialist corporate governance partner, RiskMetrics Group, to coordinate
its corporate governance and voting activities. NILGOSC avails of RiskMetrics Group’s corporate
governance research service, which provides detailed information and
financial analysis on which informed voting decisions can be made. RiskMetrics Group casts votes
electronically on NILGOSC’s behalf, in accordance with its bespoke
corporate governance and voting policy.
NILGOSC
supports the use of voting rights as a means of expressing concern over
corporate governance issues. Many institutional shareholders choose to
abstain from voting on a resolution rather than vote directly against
it, believing that this approach will send a warning signal to a
company. However, companies do not always disclose the level of
abstentions, thereby portraying a higher level of support than it
actually received on a particular resolution. NILGOSC believes that
there should be no grey area when it comes to voting and has adopted a
policy of not abstaining, except where market restrictions make it
impractical to vote.
The
following links provide a summary of the Fund’s voting activity to date.
Link to Voting
Activity 2006 Proxy Season
Link to Voting
Activity 2007 Proxy Season
Link to Voting
Activity 2008 Proxy Season
Link to
Shareholder Resolution Appendix 2008
Link to Voting Activity
2009 Proxy Season
Link to Shareholder
Resolution Appendix 2009
Engagement
NILGOSC
acknowledges that good SEE practice can have a favourable impact both
on financial performance and society in general. Accordingly, NILGOSC
requires its active investment managers to monitor best practice in
this area and ensure that SEE considerations, where relevant, are taken
into account in the investment management process. All active fund
managers are instructed to engage, on NILGOSC’s behalf, with those
companies where SEE policies fall short of acceptable standards and
where this is likely to have a detrimental effect on the long-term
value of the company.
In
addition, NILGOSC is a member of the Local Authority Pension Fund Forum
(LAPFF). The LAPFF brings together local authority pension funds across
the UK and provides a unique opportunity for discussing investment
issues, promoting corporate social responsibility and maximising the
influence shareholders have in companies in which they invest.
To contact
us about Corporate Governance or SEE issues, please email
governance@nilgosc.org.uk