The £800 billion UK pension fund industry should adopt sustainable investment and invest over longer time horizons as part of the fight against global warming, former US president, Al Gore, told a packed audience at the National Association of Pension Fund conference today.
Evidence of global warming, whatever its origins, abounds for all to see, but will company pension schemes be willing to accept possibly lower investment returns over the short term, in the interests of supporting environmentally friendly companies?
Gore sees short termism and the lack of incentives for investment managers to invest over longer time horizons (which he defines as a minimum of three years) as the major obstacles to the widespread embracing of sustainable investment by the investment management industry.
30 years ago, the average holding period of a stock by an institutional fund manager was seven years, whereas today it’s just 11 months. Furthermore, fund managers are under intense pressure to produce quarterly investment returns which meet, or exceed, demanding benchmarks or they risk losing valuable pension fund or insurance company clients.
So what is the solution to this conundrum? Mr Gore argues passionately that whatever the causes of global warming, the problem cannot be ignored and that to do so will cause damage to pension funds in much the same way as the rapid increases in longevity over the last 10 to 20 years has done to pension schemes.
Would you want your pension scheme to adopt sustainable investment and if so, would you lobby your trustees and scheme sponsor to invest in companies which operate in an environmentally friendly way?
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Well yes, but pension funds have to get appropriate risk-adjusted returns. They cannot invest for other reasons. Remember the Scargill case.
Fortunately there are some investment funds that aim to do good work and make profits. But not many!report this comment
Surely the most ethical investment of all is to ensure that people who have been promised pensions actually receive them!report this comment
I agree with Andrew Parr. I am in the position where my pension fund has gone into insolvency and the UK Government will not pay my promised Pension for which I paid over 15 years.report this comment
Having flown back that afternoon with Al and compared itineraries, there’s a certain irony in the air miles (and carbon) he is expending in disseminating the message. Surely the NAPF should have insisted the pension fund audience indulged a video link instead as a first step to “going green”? So much for leadership! On an equally serious note, the proposals suffer from the same flaw as SRI - pension funds are not the only major investors in equities and if anything our net exposure and so influence is and should be decreasing as better “matched” (and more bond/credit driven) portfolio strategies become the norm. Change will happen only if governments and corporates want it, not their minority shareholdersreport this comment
I agree both with Chris Armitage about needing to achieve an optimum return and with Andrew Parr & Sue Taft about the importance of pension promises being met. That also extends in the Money Purchase area to reducing the volatility of returns by providing more indexed, or smoothed, products, especially for the NPSS. And finally, let’s stop the Regulator forcing so much of our pension monies into gilts, with low yields, which result in poor value pensions (in DB) and poor annuities (in MP).report this comment