Scotland’s largest pension fund is considering disinvesting in Royal Bank of Scotland shares over concerns about poor environmental, social and corporate governance at the Edinburgh-based bank.
Richard McIndoe, head of pensions at the £10.5 billion Strathclyde Pension Fund, told the Sunday Herald that Edinburgh Partners, a fund manager used by Strathclyde, had raised concerns about RBS’s governance model. He would not comment on specifics.
However, it is understood that the bank, chaired by Sir Philip Hampton, scored poorly in the area of corporate governance. It is understood this is due to the fact it has the government as its biggest shareholder, and therefore risks becoming a political football, and that the bank faces an “uncertain regulatory environment”.
Uncertainty for the bank has intensified as a result of the imminent disbanding of the Financial Services Authority, and its replacement by a new Consumer Protection and Markets Authority, to sit alongside a new Prudential Regulatory Authority overseen by the Bank of England. A possible break-up of the Bank by Sir John Vickers’ Independent Commission on Banking and the outcome of other UK and EU reviews of financial regulation all add to the uncertainty.
Strathclyde, which signed the UN Principles of Responsible Investment in 2008, is also considering disinvesting in other companies – including Gazprom, Petrobras, General Dynamics, Royal Dutch Shell, Bank of America – that are in its “hall of shame”. Most were considered to have performed worse than RBS in environmental, social and corporate governance (ESG).
Russian oil giant Gazprom received a score of four – on a descending scale of one to five – in all three ESG categories for the fourth consecutive quarter, while US-based defence manufacturer General Dynamics scored four for the second successive quarter in some categories following concerns it may recommence cluster bomb manufacturing. No-one at Edinburgh Partners was available for comment.
Three investment firms used by Strathclyde – Baillie Gifford, Edinburgh Partners and Schroders – unsuccessfully opposed the remuneration report at Tesco in July. They were concerned the supermarket group paid US chief executive Tim Mason £4.3m even though performance at the US arm he heads was below par.
The Strathclyde pension fund has 180,000 members, and is available to employees and former employees of Strathclyde Regional Council and related local authorities and public-sector organisations, including Glasgow City Council.
A spokesperson for RBS said: “RBS is wholly focused on our work to restructure the bank and rebuild value for all our shareholders”.
This artilcle was published in the Sunday Herald on 12 December 2010