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Responsible Investing: Implications for Pensions

‘Assets managed under some form of sustainable, responsible investing mandate across the globe grew from $18 trillion in 2014 to $23 trillion in 2016’ Matt Tucker looks at the measures investment managers take to satisfy scheme trustees of their credentials in relation to responsible investing.

The proliferation of ethical investment funds and the sensational increase in assets invested in these funds underlines the importance institutional investors are increasingly attributing to responsible investing. Boston Consulting Group, a management consultancy headquartered in the US, estimated that assets managed under some form of sustainable, responsible investing mandate across the globe grew from $18 trillion in 2014 to $23 trillion in 2016, representing more than a quarter of total managed assets.

Investment managers are increasingly likely to be signatories to the United Nations supported Principles for Responsible Investment (“UNPRI”), a set of six principles drawn up by a group of experts from the investment industry, intergovernmental organisations and civil society, that seek to protect the interests of beneficiaries by incorporating environmental, social and governance (“ESG”) factors into the investment process. Whilst pension scheme trustees cannot directly influence a manager’s policies on ESG factors, or on the exercise of investment rights where a scheme holds assets in a pooled fund, trustees do, however, often consider ESG policies when selecting an investment manager and monitor their general policies in line with the UNPRI.

The range of polices that trustees consider is wide ranging and extensive, and isn’t just limited to those regarding environmental and social concerns, such as whether a company complies with all environmental laws and regulations, or whether it takes appropriate action to ensure decent labour standards are adhered to. Responsible investing also seeks to incorporate factors that allow for the better management of risk and the generation of sustainable long-term returns.

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Matt Tucker, Investment Analyst

matt.tucker@quantumadvisory.co.uk

 

This piece first appeared in Pension Funds Online, November 2018