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Asset Manager, Pension Fund & ESG
By René Maatman & Kleis Broekhuizen
When it comes to sustainability, much is expected of pension funds. Of course, they must ensure value-proof pensions. They are also expected to contribute to the environment, climate, human rights, social justice, and corporate governance. ESG must be factored into investment policy. But how and to what extent? There are varying preferences within the population of pension participants. Politicians, action groups and NGOs have their own beliefs. Pension fund boards must make complex trade-offs. How should the pension fund set the objectives of its collective investment policy? On which compass should pension funds sail and how should they stay the course? The authors make recommendations on how pension funds can contribute to sustainability. Besides practicing their trustee role (loyalty and diligence), the authors advocate a systems approach: reducing non-diversifiable risks (beta in investor terms) and contributing to a safe(r) financial world. They further mention balance between objectives and means (the application of the Tinbergen rule), the importance of transparent investment principles (investment beliefs), their evaluation in relation to ESG investing (feedback loops) and improving pension fund governance.
Source SSRN
