27 June 2018
Pensions, by their very nature, have to be sustainable. After all, they’re supposed to provide a measure of long-term certainty in an uncertain world.
Much of the world’s working population counts on this basic premise as they seek to build a nest egg for later life. Rather than stash their cash under the mattress, they put their faith in investment funds making what they hope are healthy bets.
Naturally, the assumption would be that pension funds are investing in sustainable businesses, or those that contribute to a healthy planet — the kind that will still be in good shape for when retirement comes. This has not always been the case, but change is coming.
As stewards of such large pools of capital, pension funds must meet the needs of current retirees whilst also ensuring future retirees will have both sufficient funds and a viable environment to retire in.
Much attention has focused on the first half of this statement, especially amid concerns that pension funds may not be able to meet their liabilities and be able to pay the pensions of current retirees due to changing interest rates, longer life expectancy, and the recent financial crisis. But the second part of the question – that of a viable environment – has been overlooked.
Pension funds, however, have a responsibility, known as “fiduciary duty”, to make prudent, un-biased decisions on behalf of, and in the interests of, their beneficiaries. Being a prudent investor requires consideration of all long-term investment value drivers – including environmental and social risks as well as opportunities – that may affect the performance of a company.
We’re beginning to see this emerge as a major consideration.
Learn more about fiduciary duty here.