Pension funds could be a formidable force in getting companies to embrace environmental, social, and governance (ESG) values such as combating climate change or advancing employment equity. Yet they must align those goals with their fiduciary duty of protecting the retirement funds of their members. In the U.S., they must also overcome challenges including gaps in ESG adoption metrics and ambiguity about government rules on such investing. Those were the key takeaways from a two-day conference organized by Wharton’s Pension Research Council titled “Sustainable Investments in Retirement Plans: Challenges and Opportunities.”

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Sufficient momentum exists: Sustainable investing in the U.S. has grown dramatically over the past 25 years, and the $17 trillion of sustainable assets under management now make up a third of the $51 trillion that is professionally managed, according to the 2020 report of U.S. SIF Foundation on trends in sustainable and impact investing.

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Total assets incorporating ESG principles managed by U.S. institutional investors have also grown appreciably over the past 15 years, to $6.2 trillion as of 2020, and public pension funds account for more than half of that (54%), according to the report. Investment policies related to climate change and conflict risks in terrorist or repressive regimes have recently been among the top concerns of investors, followed by tobacco use, corporate governance, and sustainable practices in natural resources and agriculture.

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