CORPORATE SOCIAL RESPONSIBILITY

 

 

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

 

 

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.

 

The policy is designed to provide clarity on NILGOSC’s position, which is based principally on the Combined Code and other related governance best practices, including the Myners Report on Institutional Investment in the UK. The policy represents NILGOSC’s view on what it believes are important elements of good corporate governance and identifies its voting guidelines on specific issues. Although the principles relate predominantly to UK public companies, NILGOSC actively encourages improvements in global standards of corporate governance and will apply these policies to international investments where appropriate.

 

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 its International Corporate Governance Principles, which seek to set out NILGOSC’s view on what it believes are the most important elements of good corporate governance and the principles which will be used to determine voting decisions on specific issues.  

 

Link to Corporate Governance and Voting Policy

Link to International Corporate Governance Principles

 

 

Voting

 

NILGOSC has appointed a specialist corporate governance partner, Manifest, to coordinate its corporate governance and voting activities. NILGOSC avails of Manifest’s corporate governance research service, which provides detailed information and financial analysis on which informed voting decisions can be made. Manifest 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

 

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