Understanding Pension Fund Corporate Engagement in a Global Arena

Understanding Pension Fund Corporate Engagement in a Global Arena

Prof. Gordon L. Clark and Tessa Hebb,

School of Geography and the Environment,

University of Oxford

February 27, 2003

We wish to thank Katherine McFate and the Rockefeller Foundation for their assistance

and sponsorship of this paper. We also wish to thank Paul Tracey and David Mackenzie

for their views and assistance with this paper.

All remaining errors are the sole

responsibility of the authors. The opinions expressed in this paper are solely those of the

paper's authors.

February 27, 2003

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ABSTRACT

Corporate engagement in its broadest definition is the use of one’s ownership position to

influence company management’s decision-making.

It brings together four distinct

underlying currents in global pension fund and institutional investing.

undercurrent is growing use of passive index funds.

The first

The second is the corporate

governance movement growing since the 1980s. The third force is the growing impact of

socially responsible investing (SRI) by institutional investors with a focus on the social,

ethical and environmental standards of firm-level behavior. The fourth driver is the

emerging role of new global standards dictating firm behavior. It is hoped that this

strategy provides a long-term view of value both for firm-level managers and pension

fund investors, one that promotes higher labor and environmental standards within firms.

It is also hoped that such firm-level practices will add share value to investment, thus

providing long-term benefits to future pension beneficiaries.

Key words: pension fund corporate engagement, corporate governance, socially

responsible investment, global standards

February 27, 2003

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Introduction

The influence of today’s massive pension funds is being felt in every capital market in

the world. The result is not the pension fund ‘socialism’ envisioned by Peter Drucker,

but rather a...