Loriot-Boserup: Local authority pension pools play a critical role in setting a common strategy and building capacity in terms of sharing knowledge and intelligence. They can also support their partner schemes’ TCFD reporting by providing climate analytics on the funds within the pool. There is also the strate- gic element that comes into play in setting a net-zero target and climate-risk thresholds.
Although I agree that all pension schemes are unique with their own strategic asset allocation, when it comes to climate- related risks schemes tend to have the same exposures. So, set- ting a common uniformed strategy at a local authority pension pool scheme level can be helpful in tackling resource constraints.
Pension schemes exist to fund members in their twilight years, but trustees are under pressure from regulators and their stake- holders to make greener investments. Should returns be sacri- ficed to achieve this? Rawson: There are pension schemes that could listen more to their members to understand what they mean when they talk about best interests. Climate is one example, then there are social equality and health, which are all in the best interest of members. We would encourage more member engagement and that there may be trade-offs with financial returns but looked at in the long term and across members best interests. That is a judgement for members and schemes to make.
Burger: There is not necessarily a sacrifice to be made here. We can sight plenty of examples, such as ESG Nifty 50 names trad- ing at super valuations because of their ESG profiles and an increasing number of sustainable assets looking to invest in sustainable companies, which are not growing at the same rapid pace.
They are not necessarily mutually exclusive. There is a consid- eration around your timeframe and we are seeing more strate- gies and scenarios where there are greater headwinds and tail- winds on certain asset classes. It is ultimately about choosing assets that fit your sustainable definitions and approach. Llewellyn-Waters: I would go further in that you can enhance returns through a climate lens. Our sustainable strategy seeks a stakeholder balance between planet, people and profit. That intersectionality could improve long-term risk-adjusted returns because ultimately, we are looking for economic resilience from companies living within their planetary bounds. We saw an example of this last year with a drought in sub-trop- ical Taiwan, which led to the government rationing water. Man- ufacturers who had invested in water conservation technolo- gies did not suffer a drop in productivity, giving them a competitive advantage. Those early, long-term investments have given them an economic resilience factor as they realised we are living beyond planetary bounds as a global economy and are adjusting to that. Human capital is a big component of improved productivity as well, which typically leads to better customer retention.
Electric is better than fossil, but there are other
problems it creates. Henrietta Gourlay, Grosvenor Family Office
12 Feb 2022 portfolio institutional roundtable: Sustainable investing
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