HRH Prince of Wales asks pension funds to invest for resilience and the long-term
How can you shift the financial community so they invest for sustainability? This is a tricky challenge, perhaps the most important in making the transition to a sustainable economy. Here at Forum we had flashes of success but struggled to get the big sector-wide projects with the necessary scale and impact. Last night I was at an event which, I hope, will be the start of something truly transformative.
The Prince of Wales used his convening power to bring together 100+ pension fund trustees and their advisors. The message was plain: you have to deliver long-term returns to pay the pensioners in 20, 30, 40 years time, so you should be investing for the long-term now. You should rethink your portfolio strategy. The Prince’s assumption – which I share – is that if pension trusts invest for the long-term then companies with unsustainable business models will be starved of capital, and investment will shift to the large-scale projects and innovative companies that will create a sustainable economy. This insight sat behind past Forum projects like Overcoming the Barriers to Long-term thinking.
No pension fund acting for long-term returns can ignore the Carbon Bubble. It will have to (slowly) divest of oil and gas. Multiply that by the sheer scale of pension funds across all the similar issues on water risks and so on. Well, we have ourselves the bridge to a better, brighter world.
Importantly, it wasn’t just the Prince. Dr Paul Woolley from LSE told us that the theoretical foundation of decisions in capital markets (known as the efficient market hypothesis) was fatally flawed. David Blood of Generations Asset Management told us that in their 8+ years of investing for the long-term Generations has outperformed the market by better that 400 basis points per year – which is amazing. Key quote: “Sustainability is a tool to make better investment decisions; it’s all about better returns for our clients.” A pension fund trustee (apologies, I’ve lost her name) walked through the steps the BT pension scheme has taken to integrate long-term and sustainability into their portfolio.
I hope that the audience will have been moved one step forward, from perhaps sceptical to curious, or from curious to wanting to act. The key now is to keep the momentum, to turn this event into a transformative movement. Last night there was talk of follow up with the National Association of Pension Funds and more. Let’s hope the co-organisers Accounting for Sustainability, Cambridge Programme for Sustainability Leadership, Business in the Community plus the Prince’s own private office can keep up the momentum. Our future depends on it.
Quizzing Fund Managers
Here’s the advice given in a useful booklet called “Resilience and the Long-Term: Rethinking Portfolio Strategy” which was published last night (though not on the web yet).
During your next regular manager review, why not gain greater understanding of their approach and activities and ask your existing or prospective investment managers the following questions:
- What codes of conduct or principle have you signed up to?
- How are environmental, social and governance considerations incorporated into investment decisions
- How do you respond when an environmental, social or governance issue is identified in an investee company?
- On what issues do you engage with companies?
- Are you able to demonstrate the effectiveness of your stewardship activities?
- How do you report on your stewardship activities?
If your company wants to engage investors on sustainability – and make the case for longer-term investing – then do join our Engaging Investors Roundtable. Investor Relations Directors and their sustainability colleagues share with each other and have the chance to apply best practice. If you are interested please contact Clare Martynski on firstname.lastname@example.org.
- Take a look at our Overcoming the barriers to long-term thinking work here.
- Explore our sustainability framework for investors here.