Helping pension funds to ‘do something’ with sustainability
Lucas van Berkestijn
While many institutional investors may have the ambition to integrate sustainability into their investment processes, they often don’t know where to start, struggling to make more concrete steps. “We can help them by making a step-by-step roadmap to implement sustainability investing and keep in control of their progress”, says Lucas van Berkestijn, Sustainability Investing Client Specialist for RobecoSAM.
What drives institutional investors without any experience in sustainability to want to implement it anyway?
“Institutional investors are increasingly aware of the need to align their sustainability investment policy with the long-term interests of their clients. Beneficiaries, regulators and stakeholders expect them to consider broader responsibilities than mere financial objectives. To do so, they need to be able to analyze the sustainability-related performance, risks and impact of their investments, and communicate them to their stakeholders.”
Which challenges do pension funds face when developing their own sustainability policy?
“It is not straightforward to take concrete steps towards developing, implementing and monitoring a sustainability investing approach that fits a client’s needs. The set of choices varies from exclusion policies to best-in-class approaches, voting and engagement activities or even more advanced strategies, where sustainability is embraced throughout the entire investment approach. Pension funds are faced with an information overload which can have a paralyzing effect.”
“In order to be well equipped to make sound decisions it is important to have a complete overview of the opportunities and implications of sustainability investing, to understand the impact of transitioning from the current investment approach to a more sustainability-driven investment approach and to judge which outcome fits the ambitions and constraints of your fund best.”
‘We can run Asset Allocation Scenarios or provide Environmental Impact Portfolio Analytics’
So where do you start?
“A good starting point is to scan your portfolio on sustainability performance and make a ‘journey plan’ to a sustainable investment approach, including the why, what and how of sustainability investing. First of all, determine why you want it, i.e. what your beliefs are. How can you align sustainability considerations with your investment beliefs and your fiduciary duty? Then decide what you are going to tackle first. Based on a scan of your portfolio in terms of sustainability performance and risks, decide on one or two priorities to start with. For example, take a priority asset class or strategy such as global equities or European fixed income, and start developing an implementation process. Finally, determine how you will implement the approach and continually evaluate progress. A typical implementation process takes place in steps, starting with exclusions, moving on to themes or a best-in-class investment approach, and then gradually evolves into integrating ESG factors throughout the investment process.”
What can you do to help pension funds in this process?
“We can help in the various stages of sustainability integration, depending on investors’ level of sophistication. We can help them determine the impact of their sustainability beliefs and select the criteria that match with their policy on how to integrate sustainability investing. We do this using our proprietary sustainability assessment (CSA) and scoring of over 3,000 companies, providing a detailed view on each stock, bond or even country sustainability performance. We will help with the implementation of the investment policy in the portfolio, through existing or new solutions and focus on financially material criteria that are practical and easy to implement. If there is a need, we can assist clients running Asset Allocation Scenarios when implementing sustainability or provide Environmental Impact Portfolio Analytics.”
What are your experiences so far?
“We have only just started, but we already had some positive experiences. Last year, for example, we organized a workshop for the board of a Swiss corporate pension fund without any experience in sustainability investing. They wanted ‘something’ with sustainability as they were required to communicate on this to their stakeholders. In addition to a learning session, which helped them define their beliefs, we scanned their portfolio on sustainability performance and suggested various options for implementation. This gave them a kick-start in their journey to become an active, responsible asset owner.”