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Making money is good. Doing good is even better

Not everyone agrees that pension funds and asset managers should be broadening their remit.
Image: Sean Gallup/Getty Images

Some of us are still clinging to the hope that the destruction the pandemic has wrought on lives and livelihoods will be offset by a kinder, simpler, more equitable aftermath for society.

In particular, there’s an opportunity to address the climate crisis more directly than ever. And for investment firms, the time has arrived when the moral imperative to stop funding environmentally damaging companies and industries should finally outweigh any lingering concern about sacrificing returns to do good.

In an ostensibly positive step on that journey, the UK’s biggest private pension provider said earlier this week that it won’t invest in companies that make more than 25% of their revenue from thermal coal mining. It’s also shunning tobacco makers and some kinds of arms companies. USS Investment Management, which oversees more than 68 billion pounds ($85 billion) as the guardian of the UK university system’s pension pot, said part of the move is simply codifying existing policy — it already doesn’t have any investments in cluster munitions makers, for example.

But its stated motivation for the exclusions caught my attention. USS explained in a press release that it will shun industries it deems “financially unsuitable”:

The traditional financial models used by the market as a whole to predict the future performance in these sectors had not taken specific risks into account. These included changing political and regulatory attitudes and increased regulation.

So the primary aim of its policy is to safeguard future returns. There’s no mention of the need to protect the environment or any reference to USS wielding its financial firepower to make a better world. In the current environment, that strikes me as rather a limited view of the pension fund’s role as custodian of the future economic well-being of its members. Generating a few basis points of extra alpha here and there pales in comparison with the need to ease the worsening climate emergency.

The pension fund’s defence is that it can “only take non-financial factors into account where they do not pose a risk of significant financial detriment on an investment.” Moreover, it said in an emailed response to questions that it has “good reason to believe” that its more than 400 000 members “share each other’s views on that non-financial factor.”

Surely that glosses over a fundamental point: Viewed through the lens of the climate crisis and the shift in attitudes around social and governance issues, everything is effectively a financial factor, be it gender pay imbalances, carbon emissions or the risk of companies being left with so-called stranded assets that become too politically toxic to exploit.

USS isn’t always this timid. In March, it allied itself with the California State Teachers’ Retirement System and Japan’s Government Pension Investment Fund in welcoming efforts to incorporate environmental, social and governance issues in portfolio construction. “Skeptics that continue to question the growing role of sustainability within the global investment community should realise that they are quickly becoming the minority,” the trio said.

That statement is a better reflection of the prevailing backdrop. For example, the January announcement by BlackRock Inc., the world’s biggest fund manager with $6.5 trillion of assets, that it “plans to place sustainability at the centre of our investment approach” is starting to have real-world repercussions. BlackRock is currently challenging Korea Electric Power Corp.’s planned investments in new coal-fired power plants in Indonesia and Vietnam. The second-biggest private investor in the South Korean utility, according to data compiled by Bloomberg, BlackRock said it may “escalate our actions through votes in the future.”

Not everyone agrees that pension funds and asset managers should be broadening their remit. Christopher Burnham, president of the US Institute for Pension Integrity, recently wrote in Barron’s that pension plans shouldn’t be making social and political decisions for millions of members. Such actions risk “opening the door for politicians to play politics with public pensions rather than adhere to a strict fiduciary standard of the highest returns at a reasonable risk,” he argued.

That view strikes me as outdated, and out of tune with the prevailing zeitgeist that acknowledges fiduciary duties stretch beyond factors easily represented in an Excel spreadsheet, but which nevertheless play a significant role in how investments will perform in future.

The European Union, for one, has made clear that it expects fund managers, as well as other financial institutions, to be proactive in preventing their capital from being employed in activities that harm the planet. At the end of last month, the bloc’s top banking regulator said the region’s banks must incorporate climate considerations in their credit policies, and assess whether borrowers are contributing to global warming. This will curtail lending to potentially lucrative but environmentally damaging projects. New regulations governing the responsibilities of asset managers are scheduled to come into force next year.

By taking what seems to me to be a very narrow view of its responsibilities to its members, the University system’s pension fund has missed an opportunity to use its bully pulpit to set an example for other asset managers. Now is the time to advance the argument that capitalism can justify doing good for goodness’s sake — with less emphasis on the potential financial costs of going green, and more weight given to the ancillary benefits that accrue to society as a whole.

COMMENTS   15

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There is no climate crisis. Just an opportunity for mass transfer of wealth from the poor to the elite.

‘There is no climate crises’. Please elaborate?

Onus probandi incumbit ei qui dicit.

My thread: one strike and your’e out. The first one to use a logical fallacy loses. The ball is in your court.

Asked a basic question in response to your comment!

A pension funds remit has to firstly be to ensure that contributors have funds to retire with.

Then with the vast array of options out there they can be somewhat selective. However if one tackles sustainable/ avoid things that harm the environment then the list of industries that they should not invest in will be very long. They should not invest in
1. Car manufacturers
2. Coal power plants
3. Agricultural companies with cattle and other livestock that are grown or processed
4. Anyone using palm oil
5. Any business in the rainforest wood industry
6. Chocolate
7. Coffee
8. Sugar
Etc etc

It is actually more important for the sustainability movement to continually show case the benefits of sustainable in a monetary manner. The business must be more profitable than one damaging the environment.
E.g. renewable energy now is less expensive to operate and build than a coal power station. Also a simpler investment. Therefore no pension fund should invest in coal. Coal has become in almost all cases an out of the money contract.
So if vegetarian beef burgers are cheaper than meat burgers……

Lol. Very cute.
The day my investment broker takes his eye off capital growth and starts doing woke things in stead is the day his ass gets instantly fired.

… Renewable energy is less expensive to operate .. Therefore that’s gonna make a better investment return than coal……

Lol.

Really…..

So my bicycle is way less expensive to operate than my car……

But I can travel over 400km a day in my car.
My bike – Max’s out at around 50km.
Which is gonna give me the better return if I give to my sales staff……

Ally:

In our country, unless you buy from a racketeer or live in a forest : it is an undeniable statement of fact that solar PV is now cheaper than Eskom / Council electrical energy when used to supplement grid energy.

I like my coffee and red meat and cars so will stay off those topics …

Oh dear, Gina preaching the gospel of the solar panel worshipers again.. and ventured into your diet recommendations.. Do no harm Gina, yet full of contradictions “..

“vegetarian beef burgers” ?? All cows are vegan already?

“livestock that are grown or processed” so we told to avoid processed meat, yet you thing highly processed fake beef is ok?

Tactfully compares apples with koeksisters for effect,

and makes recommendation and predictions only as a good economist can without any feedback from reality..

And this ignores growing supply of methane/natural gas..

Ignores oil price print in negative pricing..

ignores coal technology can be zero emitting..

Stick to what you know..I am a little confused what subject that really is..

Sustainability as a catchphrase is already so yesterday.

Current trends point out that sustainability is arguably a valid goal once correct practices are in place. Sustaining polluting and energy-draining practices will simply hurl us on down the road to oblivion.

Rather, the focus is turning towards regenerative practices. I e non-carbon burning, quantum generating practices.

There are very few examples of such behaviours from our species so far.

One example is the permaculture or “high farming” process of making compost- by layering the earth with the correct resources in the correct order, instead of ploughing her, we build up fertility that does not simply double or triple on an annualised basis- but increments on a quantum level whereas the latter approach breaks down fertility and carbon(e) such that chemical fertilizers are needed to sustain outputs. These then end up in the water table and rivers and air and knock-on decimate bio-diversity, environment and ecology.

Essentially thinking about the energies (fertility, nutrition, health etc) the way we think about money- generating at least 3 X more energy than we use with every action- we shall regenerate the natural abundances that overrides the scarce and competitive mindset that modern industrialisation has brainwashed mankind into.

In several aspects of business, nowadays sustainable does make more business sense.

One part is fundamental. If you compare two factories and the one invests in rooftop solar, energy efficient insulation, energy process transfers such as using waste heat from one process to kickstart the heat need of another process then this company will undeniably through better overall energy efficiency have an advantage over its competitor that does none of these things. In every sunny location, rooftop solar is now cheaper than grid power if you don’t get into silly storage ideas. Cheaper and more efficient are always better in business.

Another part is adapting. Just because you do not agree with carbon taxes does not make them less real. Yes it is absurd that taxpayer money is directed at incentives to do green stuff, but heck: if the government says that anybody that buys three lawnmowers pays no tax – guess what, I will own three lawnmowers. If I am a director and I refuse in principle to buy three lawnmowers for the tax benefit I should be fired.

As to investing : there are several highly immoral, non-sustainable, environmentally disastrous companies out there that make good money for their shareholders. People can choose whether to invest in manufacturers of land mines and cluster bombs or companies that strip mine or pump heavy metals into rivers in countries with weak or corrupt governments. I don’t but I also don’t think laws or regulations should dictate that others don’t. That said, if there is nothing wrong with investing in a land mine manufacturer then I also expect that its shareholders would not object to their identities being public knowledge.

If you have to hide then you know what you are doing is wrong.

Renewable energy vs traditional energy from coal mines is not cheaper at all.

All these sexy new renewable projects… Take their government subsidys away and see how long they last on there own 2 feet.

Any company that goes and invests in solar at this stage to run there operations is damn right retarded…. U are not saving capital at all…. It is hell of expensive for very little return. There is no bang for yr buck. The only thing u score is woke points. And I’m sorry Johan I unfortunately like many other people can’t retire on woke points – I’m not as fortunate as Greta…….

Alley :

I have done many private solar. I do feasibility I don’t supply. About a third are not feasible or borderline.

But, in most sectors and locations the owner would have to be financially illiterate or a rabid anti renewable nut NOT to go solar. After tax IRR of 15% is the Go for most projects. Some projects runs after tax IRR of 50%plus if they can bat smart with availability fee reductions.

If you need help on the math I can explain it here. If you are simply anti renewables I am not going to waste my or your time.

What government subsidy do solar projects in SA get by the way???

“If you have to hide u know u are doing wrong” ………
In this current day and age Johan if u prepared to speak truth to power – u better be prepared to hide damn well.

End of comments.

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