Pension funds should focus on changing the ethical behaviour of companies from within before choosing to divest, it has been suggested.

Speaking at the annual Pensions and Lifetime Savings Association (PLSA) Investment Conference today, 7 March, Robeco head of active ownership, Carola van Lamoen, said that it is important to make the distinction between the product the company offers and the behaviour of the company, adding that the latter can be changed through engagement.

Pressure has been growing on pension funds to divest industries such as fossil fuels, arms and tobacco, however, Lamoen believes that there is an important distinction to be made between unethical sectors and companies that may be required to make changes to their business models.

“We see that several companies have committed to ambitions, so there are some good hopes, but our engagement is not finished, we are working on other improvements. When talking about divesting or not, it is very important to make a distinction between product and behaviour,” Lamoen said.

“If you look at companies with products that you cannot engage with, for example, weapons or tobacco, on those topics you cannot have a useful conversation, so divesting might make sense.

“But, if you are talking about behaviour where improvement is needed, then it makes sense to have a discussion to improve the companies behaviour, which is a very important difference.”

FAIRR Initiative director, Maria Lettini, added that it is important to recognise that companies’ systems and strategies take time to change, but that it is important to continue engagement.

Furthermore, she said that it is important to ask companies to set their ethical objectives and to report on their progress.

“It is important that everybody is on the same page … its about educating the company as an investor. It’s a partnership and tying down targets is crucial, as well as timing and scope is hugely important,” Lettini said.

FAIRR, an initiative which aims to build a global network of investors engaged with material risks posed by intensive livestock production, recently persuaded McDonalds to implement systemic changes to the way it sources its global supply of chicken.

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