How can ‘sustainable’ corporations offer sustainable pensions?

A recent London event held by the Principles for Responsible Investment (PRI) held at the offices of AXA Investment Management took a close look at the business case. Georg Kell, former Executive Director of the United Nations Global Compact, said that as ESG issues were increasingly accepted as business ‘drivers’ they required improved quantification and evaluation of the systemic benefits. A corollary, he said, was that the gap between corporate commitment to the issues and the investment of their pension funds needed to be addressed for credibility.
This is not straightforward, however.
Univest, the in-house investment services company for Unilever, the food and hygiene multinational, is responsible for overseeing circa €24bn of assets for 80 pension funds in 42 countries. The company has a clear corporate sustainability commitment. But providing ‘sustainable’ pensions is a real challenge, says Mark Walker, Managing Director and Global Chief Officer at Univest. As a company in fast-moving, commercial markets it has different goals from its pension funds. And global coordination of all 80 schemes on ESG issues is tricky as consensus is not easily reached. Time and resources, he said, were big issues, particularly as some of the funds had yet to see the usefulness of sustainable pensions. Walker said there was a clear need to show that ESG data isn’t ‘non-financial’ and is in fact ‘very financial’ from a business perspective.
The seminar heard that few corporations have strong views on ESG or sustainable investments. And if they do, it is not always easy to implement because of a dearth of practical solutions and due diligence services that would enable them to easily align pension fund sustainability with financial goals. This is especially true, the event heard, for corporate pension funds that oftenhave fewer resources than public pension funds. Daniel Ingram, Head of Responsible Investment at BT Pension Scheme Management, said that despite the increasing prominence of ESG questions being asked about corporations and their pension arrangements in the last 4-5 years, this did not circumvent the legal ‘trust’ separation that stops a corporation telling its pension fund trustees how to run the fund, including on sustainability.
Aled Jones, Head of Responsible Investment (RI) for Europe, Middle East and Africa at Mercer, the investment consultant, said a pension fund’s investment strategy was developed through beliefs, process, and finally, portfolio strategy. For ESG inclusion ‘by default’ in that investment activity, Jones said funds needed to first focus on integrating ESG in beliefs and processes. He said quite a few corporate pension funds had actually taken major sustainable investment steps although they had gone relatively unnoticed as few were interested in talking publicly about their initiatives.
Tomi Nummela, ‪Associate Director, Head of Implementation Support at the PRI said the organisation was working on the ‘beliefs and conventions’ around the ‘purpose’ of a pension fund with the aim of demonstrating the durable value of ESG integration in investment. This, he said, would hopefully move pension funds into the “facts and fundamentals” space of sustainable investment for long-term scheme member benefits.
More broadly, there was agreement among panellists that it would be good for pension fund trustees, both corporate and public, to speak more often to outside voices on ESG risks such as lawyers specialised on human rights or corporate governance.