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Lord McKenzie of Luton: My Lords, I am grateful to the noble Baroness for giving me the opportunity to bring enlightenment to your Lordships’ House on this matter. Clause 59 enables the Secretary of State to
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I reassure noble Lords that there is no intention to make any regulations that would be inconsistent with these regulations. We are working with the Insolvency Service to make certain that the regulations are fully consistent with existing insolvency provisions. Where a corporate entity has been wound up and ceases to exist, any prior obligation that it would have had to keep records would cease to have effect and the insolvency regulations would become relevant. I hope that that response was what the noble Baroness was seeking and is clear enough for her. There is no intention of imposing a second obligation on anyone else in those circumstances.
Baroness Noakes: My Lords, I declare myself and perhaps the whole House enlightened by the Minister’s response. I am grateful to him for setting that out for the record and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 65 [Functions of the Pensions Ombudsman]:
Lord Joffe moved Amendment No. 47:
47: After Clause 66, insert the following new Clause—
(1) In carrying out its functions under section 66, the trustee corporation must secure that—
(a) a written policy on responsible investment is prepared and maintained;
(b) the policy on responsible investment is reviewed at such intervals, and on such occasions, as may be prescribed and, if necessary, revised; and
(c) the implementation of the responsible investment policy is incorporated into the trustee corporation’s annual report and in the statement of investment principles.
(2) In this section “responsible investment” means determinations about the environmental, social, human rights and good governance (“ESHG”) practices of the institutions in which investments are made by or on behalf of the trustee corporation, and their relationship to the long term profitability and sustainability of those institutions.
(3) A policy on responsible investment may include powers for the trustee corporation, and anyone appointed by the trustee corporation to manage the investment of pension money, to—
(a) engage with persons, from whom the trustee corporation purchases securities, to ensure that such persons act, or take steps to act, in accordance with the trustee corporation’s policy on ESHG practices;
(b) disinvest or sell, or not purchase or invest in, securities issued by persons whom the trustee corporation determines on reasonable grounds conducts, or has
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(4) A policy on ethical investment shall be in writing.
(5) The annual report referred to in subsection (1)(c) on implementation of policy against the statement of investment principles shall be made publicly available and cover—
(a) key aspects of the trustee corporation’s investment policy and practices against the investment principles;
(b) any significant changes in the policy and practices in investment policy against the investment principles over the previous year.”
The noble Lord said: My Lords, I am moving the amendment in the absence of my noble friend Lord Judd, who has asked me to apologise for his unavoidable absence. I pay tribute to the Aegis Trust for its support for the amendment.
The purpose of the amendment is to require the trustee corporation to prepare, publish and implement a responsible investment policy as part of its investment principles. A responsible investment policy means that, in addition to the normal principles that are applied in making investment decisions, the trustee corporation would take into account such environmental, social, human rights and governance practices of the institutions in which the investments are to be, or are already, made as are provided for in the policy that the trust corporation will have prepared and published.
It is important to emphasise that there is no intention to impose a specific and responsible investment policy on the trustee corporation. It is for the corporation to prepare its policy and to make it as demanding as it sees fit. The amendment should be considered in the context of the statement by the Minister for Pensions, which, in his customary and fair way, my noble friend the Minister drew to the attention of the House in Committee. It states:
“If we are to build a more successful, vibrant, modern economy we can no longer afford to view economic success as being in conflict with social and environmental goals. On the contrary these goals must be seen as integral to economic success and the very essence of sustainable development”.
That is the precise reasoning underpinning the amendment. We want the pension corporation to take into account these social and environmental goals of which the Pensions Minister spoke. We believe that the amendment would not only give effect to government support for responsible investment but be of positive benefit to the corporation’s trustees, who would know that it was perfectly legal for them to take social, economic, environmental and human rights practices into account in making their investment decisions.
Some trustees believe that the law does not permit them to take ethical practices into account in making their investment decisions. Rather more trustees question whether it is lawful for them to actively engage with corporations in relation to what they see as unethical practices. Even more trustees do not believe that they are permitted by law to disinvest from corporations whose practices they see as anti-social, anti-environment or anti-human rights.
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The amendment would make it clear to trustees that it is perfectly lawful for them to act in this way. My noble friend the Minister made it clear in Committee that the Government are sympathetic to ethical investments but that they would not agree to include them in the Bill for at least two reasons. The first was the primacy of the trustee of any pension scheme when making investment decisions. However, it is difficult to understand why this principle is so sacred. Trustees have no primacy, for example, to make investment decisions that benefit them personally. They are subject to fiduciary duties and to the requirements of their regulators. It is hardly an infringement of trustees’ primacy to require only that they take into account unethical practices that could harm people or the environment. It is arguable that the trustees’ failure to take account of such practices could be a breach of their duty to act responsibly.
The Minister drew attention to the costs and said that the costs of the corporation trustees should be kept to a minimum. It is important to be realistic about costs. The cost of a few extra members of staff to look into environmental and associated matters would be minuscule in relation to the scale of the costs of running the investments that are likely to emerge.
The Minister was good enough to invite my noble friend Lord Judd and me to see him. We greatly appreciated that gesture and the fact that he listened carefully to what we said. We still could not convince him but, in view of the points that I have made, perhaps he will feel that the amendment fits in completely with government policy. I beg to move.
Baroness Northover: My Lords, I rise briefly to support the amendment and apologise for not being here at the beginning of the remarks of the noble Lord, Lord Joffe. The Committee is moving at a very fast pace all of a sudden and I am afraid that I was at a meeting.
The amendment concerns a very important principle. It is an issue that we fought over long and hard during the passage of the then Companies Bill and the Climate Change Bill, and we made some very good progress. I welcome the fact that the Government have been engaging with us on this issue. The noble Lord, Lord Judd, was surely right when he said in Committee that pensions should be about equality, dignity and fairness, and that should also apply to the question of where pension money is invested. It can of course be a power for good but equally, as we very well know, that may not be the case. Surely it is self-evident that pension money should not be invested in companies associated with, as stated in the amendment, crimes against humanity, war crimes or genocide.
The amendment is in line with what we agreed in the Companies Act and more recently in the Climate Change Bill, although we have to ensure that the amendments that were agreed in this House are adhered to and not watered down in the other place. As we know, companies are moving in this direction in terms of corporate responsibility, and that is an extremely welcome development.
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These are not mandatory requirements, welcome though that might have been, but they open up what policies are in place by having the written policy on ethical factors there to try to motivate investment decisions. For pension funds to assess this issue properly, they need to take corporate responsibility into account as a factor. That does not necessarily go against corporate interest in that pressure on companies in such a situation will have an effect on their share price. Pension funds are of course mindful of that and their members are now much more likely to hear about and react to such stories than used to be the case prior to the internet and the spread of global information.
As I and the noble Lord, Lord Joffe, said, the Government seem to have been listening. That is very welcome, and I look forward to hearing what the Minister has to say in reply.
The Lord Bishop of Ripon and Leeds: My Lords, I, too, welcome and support the amendment. I do so partly from the experience of the Church of England Pensions Board, which for many years has worked to the ethical policies established for it by the church successfully and effectively. It seems to me that our experience of ethical policy within the church has enabled us to maintain particular ethical standards, which have been extremely important for the life and witness of the church and, I hope, for the encouragement of others in areas of ethical investment.
It is becoming increasingly important that sustainable development should be at the heart of much of our legislation. This seems to me to be an ideal opportunity to go with that principle in total accord with the Government’s aims, and I very much hope that the Government will see fit to accept the amendment.
Lord Oakeshott of Seagrove Bay: My Lords, I start by paying tribute to the Aegis Trust for its valuable work on the amendment. From the Liberal Democrat Front Bench I thank my noble friend Lady Northover and my noble friend Lord Joffe—if I am allowed to call him that—with whom I have long and happy experience of working on charitable matters.
This is an important principle and we on the Front Bench are sympathetic to it. I think it is fair to say that the debate has probably moved on a little since Committee. We particularly welcome the detailed and very inclusive discussions that we know the Minister has been having with both the movers of the amendment and PADA in particular.
We are concerned to ensure that such changes do not add significantly to costs or make the operation of PADA more complicated, because obviously it must be a simple, low-cost scheme. However, we believe that these are sensible points for PADA to consider. To be honest, I would define a little more widely why I think the cost argument might favour something such as this amendment. Even over the past few months, we have seen how the operation of pension funds can facilitate the wrong sort of activity—and very damaging activity—in markets. I would define social responsibility also to include things such as not facilitating the activities of short-sellers and hedge funds, and being very careful
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The other point on costs—I find this most distasteful—is that a series of companies have announced that they are to move their headquarters to Dublin from this country for tax purposes. Often it is just two men and a dog and is not really moving but it is clearly tax-dodging. To me, that is also bad governance and should be considered in relation to ethical investment. I am particularly concerned about Henderson, which is an old established, pukka British fund manager. It is the same family that founded Cazenove. It runs many billions of pounds in ethical funds for British local authorities, charities and public bodies, yet it has just announced that it is to move its headquarters to Ireland for tax purposes. How socially responsible is that? Therefore, if as part of our consideration of the Bill we can try to stop people doing that sort of thing, we will save costs. We will recover some costs for the benefit of British taxpayers and pensioners in general.
We are very concerned to keep things simple. We know that the Minister has been engaging in this and we look forward to hearing what he has to say but we think that the mover of the amendment made some good points.
6.45 pm
Lord Skelmersdale: My Lords, this is such an important amendment that I hope I might be allowed to utter from the opposition Front Bench.
We had a long and comprehensive debate in Committee on a similar amendment in the name of the noble Lord, Lord Judd, and I can do no better than reiterate the comments of my colleagues in another place: we believe in the need for a proper appreciation of the importance and benefits of ethical investments. I agree with the Minister, who said that pension schemes are a,
However, yet again the argument, and indeed the amendment, have been limited by the intention that trustees should take account of ethical investment principles in terms of personal accounts rather than more generally. If ethical investment is such a good thing—and indeed it is—surely it should be considered by the trustees of all pension schemes. As I understand the position—the Minister will be able to correct me if I am wrong—to an extent it already is because, under existing trust law, trustees must prepare a statement of their investment principles which is sent not only to fund managers but also to members and prospective members, and most importantly must include the extent to which social, environmental and ethical considerations are taken into account in the selection, retention and realisation of investments. In other words, that is something like 75 per cent of what is sought in the amendment.
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The ex-chairman of PADA has not yet been introduced to your Lordships’ House as Lord Myners, so he cannot say whether, before he left, PADA had yet started on a round of consultation on socially responsible investment, which by definition includes ethical investment. Given his ministerial responsibility, perhaps he never will be able to tell us in person, but I am sure that the information will filter through somehow.
I say to the noble Lord, Lord Joffe, that work is apparently progressing, but that the amendment does not really cover what it needs to cover.
Lord McKenzie of Luton: My Lords, I am very grateful to my noble friend Lord Joffe for moving this amendment and to all noble Lords who have participated in this short but important debate. At the outset I say—I hope this will not come as a disappointment—that we do not feel able to accept the amendment. The purpose was to provide an opportunity to state again the Government’s position and to outline what investment consultation PADA has under way —an upcoming event. We discussed that when I met my noble friends Lord Joffe and Lord Judd. I fully understood the concerns driving the amendment and I was sympathetic to their intentions.
In setting up a new workplace pension scheme on the scale of personal accounts, it is hugely important that responsible investment is properly considered. But, as in any other trust-based scheme, the trustees must be allowed to make investment choices that are right for their members. It would not be appropriate for the Government, or Parliament, to impose any guidelines which might restrict a trustee’s ability to act independently in carrying out the overriding duty to the members.
Furthermore, as the noble Lord, Lord Skelmersdale, and others have identified in recognition of the importance of responsible investment, current law already requires the trustees of pension schemes to prepare a statement of investment principles which must be made available to members and prospective members. It sets out the guidelines which fund managers must follow in investing members’ funds. In the statement of investment principles, trustees of pension schemes must already state to what extent social, environmental or ethical considerations are taken into account. That is an obligation on trustees—not simply a right or an option.
The delivery authority has already confirmed that it will consult on investment and will be holding a responsible-investment event later this year. My upcoming noble friend—Lord Myners—may not be able to say that in person, but he was at the meeting with my noble friends Lord Joffe and Lord Judd and I know that if he were able to deliver that message directly he would do so enthusiastically, as he is a great supporter of socially responsible investment.
Originally, the amendment was laid to enable me to speak again on disinvestment. The proposed new clause seeks to provide the trustee corporation with the right to disinvest from investments associated with crimes against humanity, war crimes or genocide. In responding to this issue, I would like to take the opportunity to provide some clarification on the current operation of the law in this area.
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There is no reason in law why trustees cannot consider social and moral criteria in addition to their usual criteria of financial returns, security and diversification. This applies to the trustees of all pension schemes. Of course, disinvesting may not be the most appropriate approach for pension scheme trustees looking at the long-term sustainability of their investments. Engagement may be the right approach in any particular case.
I hope that I have been able to put clearly on record the Government’s position on responsible investment by pension schemes. We take this matter seriously and it is one on which, as I have already mentioned, the delivery authority will be consulting. A component of the authority’s approach, as I have said, is to hold a specific stakeholder event on responsible investment shortly and I urge all noble Lords who have participated with passion in this debate to take the opportunity of engaging in that event. That would be an important part of the process which is undertaken in respect of recommendations to the trustees about investment policy.
I am grateful to noble Lords for their insightful and thoughtful contributions to this debate. I hope that noble Lords will not press the amendment, but see that there is a very clear way forward to engage in investment policy.
Lord Oakeshott of Seagrove Bay: My Lords, I am grateful for that thoughtful response. Does the Minister agree that aggressive tax avoidance, such as moving company headquarters offshore, or the aggressive use of tax havens to avoid business taxes or taxes like stamp duty, is an important part of assessing whether companies are acting in a socially responsible way?
Lord McKenzie of Luton: My Lords, the noble Lord challenges me on a very interesting and important issue. I suppose there is an issue of where an investment is located and whether one makes a judgment narrowly, say, in relation to the UK’s domestic interest, or more broadly and whether companies are engaged in simply taking advantage of the laws that exist or are doing something beyond that. I rest my defence by saying that, ultimately, that is a matter for the trustees or for my Treasury colleagues, and not for a lowly DWP Minister.
Lord Joffe: My Lords, I am grateful to the Minister for clarifying the law and the consultation process, for his courtesy throughout the debate here and in Committee and for being prepared to engage on the issues. I shall need to discuss with my noble friend Lord Judd whether to bring this back at the next stage. In the mean time, I shall withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Noakes moved Amendment No. 48:
48: After Clause 67, insert the following new Clause—
(1) An order establishing a scheme must provide that the scheme may not—
(a) accept transfers into the scheme from other approved schemes, or
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(b) make transfers out of the scheme into other approved schemes,
except in circumstances which are prescribed in the order.
(2) This section ceases to have effect on 1st January 2017.”
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