Brief History of Responsible Investment
Responsible Investment has only risen to prominence recently, yet it has its origins in the beginning of corporations themselves. As long as there have been shareholders there has been the idea that shareholders can and should exercise control over a company.
When the Dutch East India Company became the first company to sell public shares in 1602, a movement sprang up amongst Amsterdam’s religious groups to boycott the company until it foreswore violence in its business operations. The movement failed though, as the Dutch East India Company managed to raise enough capital from wealthy investors to brush aside such boycotts.
The 1602 campaign failed in its goals for the same reason that similar campaigns are succeeding today. Over the past 50 years there has been a revolutionary shift from companies being owned by a few wealthy individuals, to companies being owned by institutional investors such as pension funds. As recently as 1963, wealthy individuals owned 54% of the UK stock market. In 2006 that figure was less than 15%.
Institutional investors manage money belonging to thousands of ordinary people, from bus drivers to school teachers. Ordinary people are the new owners of corporations, and as this shift has taken place the idea that shareholders could (and should) influence the way companies are run has grown to prominence.
The campaign to end apartheid in South Africa was the first major battleground on which the idea of Responsible Investment became important. In 1977 a UK-based campaigning group called End Loans to South Africa introduced one of the first dissident shareholder resolutions at Midland Bank. This marked the beginning of shareholder activism as a means of prompting companies to act responsibly.
However, these early campaigns were limited. One or two shareholders submitting a resolution at an AGM does not have the same impact as a pension fund, which owns millions of pounds worth of shares, doing the same thing.
Although major pension funds in the US such as CalPERS (California Public Employees Retirement System) had been experimenting in Responsible Investment in the 1980s, the first pension fund in the UK to adopt Responsible Investment was the University Superannuation Scheme (USS) in 1999.
USS, then the third largest pension fund in the UK, adopted Responsible Investment after a campaign called ‘Ethics for USS’ was organised by the Oxford-based campaigning group People & Planet. Ethics for USS engaged thousands of academics, administrators and students at universities and colleges across the UK to meet its goal of turning USS into a responsible investor.
Since 1999 the number of pension funds adopting detailed Responsible Investment policies has grown. As of 2009, six of the largest pension funds in the UK are signatories to the UN Principles for Responsible Investment, a scheme initiated by the UN in 2005.