ESG | Opinion
What would Greta say?
PI’s deputy editor Mona Dohle has looked at the green fund her pension pot is invested in and she is not happy.
There is no doubt about it, going green is in vogue. More than 70% of people sur- veyed by the Department for International Development in October said that they want their pension scheme savings and other investments to avoid harm and ben- efit people and the planet. The industry has caught up with chang- ing preferences. As of 2017, there were 176 green-themed funds listed on Euro- pean markets, according to Novethic. Institutional investors acting on behalf of pension schemes are now required to dis- close their Statement of Investment Prin- ciples on ESG investments under the updated Shareholder Rights Directive. Investing in green funds could be one option to demonstrate growing aware- ness of climate change. But how sustain- able are these funds?
Inspired by the global climate protests, I joined the bandwagon and shifted my pension money into sustainable funds offered by my defined contribution (DC) pension provider. I thought that my sav- ings would be invested in wind turbines but was shocked to discover that the big-
gest equity positions in the green fund were Mastercard, Apple and Microsoft. While these firms might have relatively low CO2 emissions, they score signifi- cantly worse on the “S” and “G” compo- nents of the ESG universe. Just this year, Mastercard has been challenged by share- holders for financing far right hate groups, Microsoft has been under attack for colluding with the Chinese military in developing AI surveillance mechanisms, and Apple? Well, mass suicide of workers is hardly a good starting point. The short- comings of green investment funds are hardly an isolated incident. Other such funds list car-makers, Nestle and even oil firms as their biggest equity holdings. Perhaps fund managers of those ESG funds should ask themselves the ques- tion: What would Greta say? The 16-year- old climate activist is not one to hold back on constructive feedback. “I want you to act like your house is on fire – because it is,” she once said. “We have done our homework, you have not,” is another gem. No doubt, the climate activists marching
on the streets today would be scathing about the investments made by many of the funds marketed as “green” or “sustainable”. Trustees and chief investment officers making investment decisions on behalf of pension scheme members will have to grapple with the challenge that many of their members would associate “green funds” with something more akin to an impact investment fund which invests directly in companies whose products and services are aimed at tackling envi- ronmental and social problems. However, shifting the bulk of the £2.2trn managed by UK pension funds into impact invest- ment funds would result in concentrated portfolios that could conflict with the other
fiduciary duties which trustees
hold, including that members benefits should not being put at unnecessary risk. Nevertheless, there is a significant need for green investments. Becoming carbon neutral by 2050 needs an additional £20bn investment each year, according to Vivid Economics. Pension funds could play a key role in meeting these funding needs. Campaigns such as #makemymoneymat- ter highlight that pension schemes and asset managers need to brace themselves for challenging questions from scheme members.
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34 | portfolio institutional | November 2019 | issue 88
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