The Only Way is Ethics

In this article, written as a former Member of Parliament, Tom examines the role of the Parliamentary Contributory Pension Fund, urging it to adopt a more proactive approach to ethical and responsible investing – without the need to sacrifice financial efficiency, and in line with the ongoing campaign of ShareAction and their ‘AGM Army’. The article, together with a reply from PCPF, was published in the summer 2016 issue of Order Order, the magazine of the Association of Former MPs.   

Here is the relevant page: 160610 Order Order PCPF and here is the article:

In the year to June 2015 the American stock market rose by over 7 per cent. That’s good – if you invested in the right stocks. An American teachers’ pension fund recently discovered that, over that year, it had lost $135 million on investments in a basket of oil and gas shares (1). The market has finally discovered climate change – and it’s punishing those who contribute most to it.

The Parliamentary Contributory Pension Fund (PCPF) invests the money that we put aside for our retirement when we were Members of Parliament. Its members know that it’s not an insignificant sum and we trust PCPF trustees, mostly former colleagues, to look after our investments.

One of those is in Shell, the oil giant, whose normally stable share price has fallen by over a third in two years and is now at its lowest since 2010. This raises the question ‘is this a good long term investment?’ But also, in light of the COP21 consensus on global warming, are we happy to invest in hydrocarbons?

‘Ethical’ and ‘responsible’ investing are growing and the UN’s ‘Principles of Responsible Investment’ agency operates out of London. Encouraging guidelines abound too, though implementation by pension funds generally has been slow – despite strong evidence that ethical investment funds can actually produce higher returns than the mainstream (2).

The bulk of institutional investment continues to focus on short term gains, suggesting that the interests of ‘independent’ fund managers are at least as important as the long term benefit of members (you and me).

The Church of England’s pension fund has an ethical perspective. It doesn’t invest its £8 billion assets in companies where more than 10 per cent of activity is military, or more than 25 per cent relates to tobacco, alcohol, high cost lending or human embryonic cloning; or more than 3 per cent is pornography. Other funds rule out companies with child labour in their supply chain and low carbon investment is increasingly favoured.

In 2015 I asked PCPF what ethical guidelines govern investments made on our behalf. Their reply was slightly reassuring: fund managers are instructed to act ‘consistent with [environment, social, governance] principles and in compliance with the [Financial Reporting Council] Stewardship Code’. Although the FRC code is notoriously weak it does require funds to report on the extent of compliance.

When I asked about PCPF policy on investment in carbon, arms and child labour I was told that ‘the Trustees do not currently exclude on ethical grounds any particular companies or sectors which their managers are permitted to invest in’. Why not? Because it would be ‘extremely difficult’ to achieve consensus on moral issues (3). Is this still their position?

Investors are increasingly demonstrating that they can be morally sound whilst maintaining, even enhancing, their fiduciary duty to those whose funds are being invested. Institutional investors are particularly powerful. I would hope that by choosing to demonstrate both social and fiscal responsibility PCPF can optimise both our funds and our futures.


(2) Mercer (June 2015), Investing in a Time of Climate Change.

(3) Personal correspondence, Jan/June 2015