An analysis of sovereign wealth and pension funds' ethical investment guidelines and their commitment thereto

Abstract

Sovereign wealth and pension funds make use of investment guidelines as they invest for substantial part public money also, and thus, are subject to greater public scrutiny and expectations of environmental sustainability than privately owned funds. Thus informed, this article studies 13 sovereign wealth and pension funds selected by their appearance in the Truman scoreboard as having ethical investment guidelines addressing social and environmental issues. To analyse the ethical investment guidelines, the investigation first determines whether or not the selected funds conform to the Global Compact (RQ1). The investigation then determines if the selected funds also make use of sanctions to bring their ethical guidelines to bear (RQ2). The findings of the quantitative content analysis of the funds' ethical guidelines reveal that a quarter per cent of the funds fully adhere to the Global Compact. One of the funds ensures their ethical guidelines are put into practice by sanctions as exclusions from the fund by divestment. Finally, the authors arrive at the conclusion that only funds with published investment guidelines and applicable sanctions may influence corporate behaviour, and thus, take up their (as well as their investments') social and environmental responsibilities.

Keywords:

• sovereign wealth funds
• pension funds
• global compact
• social responsible investment
• ethical guidelines
• business ethics
• sustainability

Notes

By ethical investment guidelines, we understand any endeavour to promote concepts such as sustainability, social responsible investment (SRI), environmental responsibility, stakeholder advocacy, corporate citizenship, triple bottom line, impact investing or environmental social governance (ESG), as opposed to absolute return investment strategies, having profit-maximization as the one and only goal, irrespective of the possible side effects.

DP world came into being when Dubai Port Authority and Dubai Ports International merged.

The G8 is a group of eight major economies. France, USA, UK, Russia, Germany, Japan, Italy and Canada are members.

Bluewashing is a derogatory term used on any partnership between the Global Compact and a corporation. Often used about firms that are suspected of entering into a partnership with the Global Compact for alibi reasons.

The Global Compact Principles: (1) Businesses should support and respect the protection of internationally proclaimed human rights; and (2) make sure that they are not complicit in human rights abuses. (3) Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; (4) the elimination of all forms of forced and compulsory labour; (5) the effective abolition of child labour; and (6) the elimination of discrimination in respect of employment and occupation. (7) Businesses should support a precautionary approach to environmental challenges; (8) undertake initiatives to promote greater environmental responsibility; and (9) encourage the development and diffusion of environmentally friendly technologies. (10) Businesses should work against corruption in all its forms, including extortion and bribery.

The current size was taken from the most recent annual report of each fund, where these were publicly accessible, and from third-party sources (SWF Institute) for the DIC and KIA.

These are, in detail: ‘Develop, produce, otherwise acquire, stockpile, retain or transfer to anyone, directly or indirectly, cluster munitions’ and ‘assist, encourage or induce anyone to engage in any activity prohibited to a State Party under this Convention’ (Convention on Cluster Munitions, 2008).

The findings display the sum of the adopted Global Compact principles (Sum GCP (of 10)), the sum of the adopted Global Compact topics (Sum GCT (of 4)), the sum of the banned weapon types (Sum W (of 3)) and the sum of the banned vices (Sum V (of 4)).