Many large pension funds need to refocus their attention to improve their performance.
BT (LSE: BT-A) is making my blood boil. And no, I'm not complaining about my phone line. Instead, I'm annoyed that its giant pension fund has won top marks -- a platinum award, no less -- for its commitment to responsible and sustainable investment.
Other award winners -- announced earlier this week by campaign group UK Sustainable Investment and Finance (UKSIF) -- include Barclays (LSE: BARC), BP (LSE: BP) and HBOS, the failed bank that is now part of Lloyds Banking Group (LSE: LLOY).
"The BT Pension Scheme remains the only corporate pension fund to achieve our Platinum ranking," says award organisers UKSIF. "The Barclays UK Retirement Fund, BP Pension Fund and HBOS Final Salary Pension Scheme have all progressed to a Gold ranking from Silver in 2007. Thirteen funds achieved Silver ranking."
Dangerous nonsense
Apparently, says UKSIF, four-fifths of pension funds now have a responsible investment policy, compared with only two-thirds in 2007. What's more, two-thirds of pension fund trustees think it important to align their fund's responsible investing policy with the corporate sponsor's corporate and social responsibility policies -- in other words, the employer whose employees the scheme is designed to benefit. In BT's case, one doesn't have to look too hard at its website to see it trumpeting its corporate and social responsibility credentials.
As a shareholder in BT, I am -- to put it mildly -- somewhat narked that the company slashed its dividend by nearly 60% when it announced its annual results on 14 May. As my Foolish colleague Alan Oscroft noted, BT's pensions deficit is now bigger than the value of the company, and the board is planning to increase its pension fund contributions to a whopping £525m a year over the next three years.
Welcome To Planet Reality
I have a message for the board of BT, and its pension fund trustees. Why don't you concentrate on maximising the value of the fund -- and minimising the deficit -- rather than mucking around with ethical investing? Then you might be able to pay me a larger dividend. And pay it to me sooner, rather than later.
If investing 'sinfully' cuts the mustard -- or, should I say, cuts the deficit -- then I'm all for it. And how sinful is sinfully? I don't know: the 23-page report accompanying the awards is coy about exactly what constitutes 'responsible investing' and what doesn't.
Is BAE Systems (LSE: BA) prohibited, because it manufactures munitions and weapon systems? Diageo (LSE: DGE) because booze is bad? Tesco (LSE: TSCO) because it threatens small village stores? I dunno. What I do know is that these are FTSE 100 businesses that any half-decent pension fund should invest in. Bizarrely, several of the companies winning UKSIF awards would surely feature high on any ethical investor's 'prohibited' list -- such as Rio Tinto (LSE: RIO), Royal Dutch Shell (LSE: RDSB) and British Airways (LSE: BAY).
Contagion
We see more of the same nonsense at Barclays and BP. Only yesterday, Barclays announced it was proposing to close its final salary scheme to existing staff. In a parallel move, BP announced that it was to close its UK final salary pension scheme to new recruits. In the UKSIF awards, the Barclays and BP pension funds won a gold award, having achieved silver two years ago.
Now, the good people at UKSIF and other bodies associated with the awards might point out that investing ethically doesn't materially affect funds' performance. Again, I don't know if this is the case or not -- in the event, the proffered interviewee declined the opportunity to speak to me.
But even if that's the case, the point is that it's an accidental outcome -- the fortunate by-product of an investment decision process that focuses on something other than risk and return.
BP, where the pension fund is apparently in surplus, might feel it can afford the luxury of ethical investing -- even though it's simultaneously pulling the plug on new employees joining its scheme, the ethics of which it may also care to ponder.
At BT, where the hole in the fund is enormous, common sense is a necessity. As a result, the company's representatives on the pension fund's board of trustees should be arguing for a little harsh commercial reality. Pension fund growth by any means -- and let shareholders have their dividend back.
More from Malcolm Wheatley:
Of the companies mentioned, Malcolm holds shares in BP and BT.
