G7 should position public pension funds as responsible investment leaders – Deutsche vice chair

Governments in the G7 group of industrialised nations should position their public pension funds as leaders of responsible investment to promote sustainable growth, Deutsche Bank Vice Chairman Caio Koch-Weser has told officials.

“You as the G7 have a big opportunity to make gains in sustainable growth through a concerted action agenda,” he told government representatives ahead of next week’s G7 summit in Germany.

He said: “Public sector pension funds should be doing much more to lead by example: G7 countries would work with your many public pension funds and announce that they will deepen their efforts to shift investment mandates and practices towards responsible investment practices of incorporating carbon as well as ESG factors into investment decision making.”

He said governments can help expand the number of investors asking tough environmental, social and governance (ESG) and climate change questions of their fund managers and the companies they invest in by “expanding and replicating” initiatives like stewardship codes – though the “massive shift” to passive investment and a focus on low-fees poses a challenge.

“There are many regulations on companies’ environmental practices but not many for the financial sector. This needs to change,” Koch-Weser said in a wide-ranging address.

“Sustainability needs to be applied through different types of regulation and standards in several areas of the financial sector: annual reporting by companies and investors, due diligence and risk models, institutional investor contracts with asset managers, how asset managers and investors analyse and work with the companies and real estate they invest in, how investors engage with governments and companies in the bond market and how research analysts and credit rating agencies assess sustainability.”Koch-Weser in effect used the speech as a roadmap for the way forward for responsible investment and suggested a four-point plan of action for G7 governments to take the lead in financing the low-carbon transition, pointing to its “distinguished history of collaborative financial leadership”. The four main points are:

1. Establish a long-term decarbonisation goal
2. Set strong, predictable and rising carbon prices
3. Position public pension funds as leaders of responsible investment
4. Drive low-carbon/sustainable financial sector reform

Sustainability and “an effective prudent financial market architecture” are up for discussion at the two-day event being held on June 7-8 in a castle in Bavaria, southern Germany alongside foreign, security and development policy issues.

Koch-Weser has been vice chairman of Deutsche Bank Group since 2006. Before that he had senior government and regulatory roles; he is a former Chair of the World Bank Policy Committee. He currently chairs the board of the European Climate Foundation, the philanthropic body that promotes the transition to a low-carbon economy, and is a director of the World Resources Institute (WRI) environmental think tank. He’s also a non-executive director at BG Group, the oil and gas exploration firm being acquired by Royal Dutch Shell.

He told his audience that the guiding question “is not if but how to manage the low-carbon transition”. He also challenged his audience to be the first OECD country to issue a green government bond.

Earlier this week, 120 CEOs of the world’s biggest investment funds called on the G7 to commit to ambitious climate targets.