CEOs urged to invest ‘sleeping giant’ corporate pensions in sustainability

Financing the Sustainable Development Goals (SDGs) will require some $90 trillion over the next 15 years. Unleashing corporate pension fund trillions will help hit this massive target, say the heads of the world’s largest corporate and investor sustainability initiatives.

The heads of the world’s largest corporate and investor sustainability initiatives have called on the private sector to mobilise the trillions locked up in corporate pension funds and invest in green projects.

While companies have made progress at integrating sustainability into their operations, not enough is being done to ensure that their financial investments - pension plans in particular - align with their own sustainability values, the United Nations-backed Principles for Responsible Investment (UNPRI) and the United Nations Global Compact (UNGC) have said. 

Corporate pension plans represent “a sleeping giant” in the push to achieve the United Nations’ Sustainable Development Goals, said Lise Kingo, chief executive officer and executive director, UN Global Compact and Fiona Reynolds, managing director, UNPRI, in a joint statement.

“When we consider the capital that will be needed to achieve the Sustainable Development Goals, the multi-trillion-dollar corporate pension industry needs to be activated to join other actors in private finance that have aligned to the 2030 [SDG] Agenda,” they said.

Last week, United Nations General Assembly president Peter Thomson said that financing the SDGs would require some $90 trillion over the next 15 years. Corporate pension funds - which amounted to US$2.9 trillion in the US alone last year - could go some way to meeting this target.

Corporate plans need to align with their sponsors’ sustainability philosophy. Otherwise, investment decisions will be out of step and could actually be undermining the stated aims of the sponsoring corporation’s strategy.

Lise Kingo, chief executive officer and executive director, UN Global Compact

Channeling corporate pension funds into sustainability investments is rare. Of the 1,700-plus corporate signatories to the UNPRI, fewer than 50 are doing so.

It is rarer still in Asia. The report, Pensions with Purpose: Meeting the Retirement Challenge, published last year by US financial services consultancy State Street, highlighted how the idea of investing pension funds sustainably is slowest to catch on in Asia Pacific.

Based on a survey of 400 pension professionals, a quarter of whom were from Asia Pacific, the report showed that 96 per cent of Australian pension professionals expect that their institutions will have a “high” or “moderate” level of interest in environmental, social and governance (ESG) investing between now and 2019, whereas for those based in Japan, 73 per cent thought similarly.

By contrast, only 35 per cent of those interviewed in Hong Kong or Singapore anticipate their institutions to have moderate interest in ESG investing over the same time frame.

To address the issue of unsustainable corporate pension funds, Kingo called on the CEOs of corporate signatories of the UNGC to encourage their associated pension schemes to adopt the UNPRI’s principles. 

Benefits for companies include improved investment performance, a better regulatory risk management, a boost in corporate sponsor credibility, and the chance for pensioners to leave a more sustainable legacy, Kingo pointed out.

To help companies start moving their pension investments, UNPRI has published the guide, Aligning Values: Why corporate pension plans should mirror their sponsors. 

The guide encourages companies to engage pensioners and investment managers to embrace responsible investment as a culture, and to make the SDGs the guiding philosophy behind companies’ investment strategies.

Kingo said: “We strongly believe that corporate plans need to align with their sponsors’ sustainability philosophy. Otherwise, investment decisions will be out of step and could actually be undermining the stated aims of the sponsoring corporation’s strategy.”

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