Pension Funds on File: Are Asset Managers Serious About Sustainability? | Interviews

Cautious optimism


Pension Reserve Fund (FRR)
France

Olivier Rousseau, member of the board of directors

  • Assets: €26bn
  • Pension Reserve Fund
  • Location: Paris

In defense of the asset managers who have been accused of greenwashing, I would say that the allegations against them suggest that they may have overstated their commitment to sustainability, which is indeed bad, but that doesn’t mean that everything they do is bad from a sustainability point of view. perspective.

At the FRR, if during due diligence we find that an asset management company claims to be greener and more sustainable than it really is in our eyes, its valuation will suffer. There will be instances where a company is convinced of its sustainability record and rarer instances where there may be outright dishonesty, and we’ll try to differentiate between them, but ultimately the assessment will reflect its sustainability record and outright lies will mean exclusion, of course.

The sets of rules implemented by regulators, at national and European level, have the potential to facilitate greenwashing, as they impose high demands on both managers and investors, but they are very useful in informing and protecting non-professional investors. The problem I see is that regulations sometimes move faster than the availability and quality of data and are implemented despite the lack of agreement on methodologies. The processes of choosing the right methodology to measure carbon emissions, for example, should require more trial and error.

“The sections of rules implemented by regulators, at national and European level, have the potential to facilitate greenwashing, as they impose great demands on both managers and investors, but they are very useful inform and protect non-professional investors”

That said, I consider the regulation to be more relevant for retail investors than for institutions. Institutions generally move quickly on their journey towards climate neutrality, they tend to conduct extensive research on managers and often have higher requirements than those contained in regulations. But it is unfortunate that the regulations tend to crystallize some of the methodologies, despite the lack of agreement on them. The regulators’ intentions are excellent, but care must be taken not to sterilize methodological developments by crystallizing the standards too soon.

In 2014, in partnership with AP4, MSCI and Amundi, we pioneered the design of low carbon indices, an initiative of which we are proud. But such an approach is not always flawless. For example, indices prohibit or assign a low weighting to large issuers, which then end up in the hands of other shareholders. The reality is that decarbonizing portfolios contributes to the green transition because it increases the cost of capital for larger emitters. A best-in-class approach also does not totally exclude the best oil and gas companies that are really committed to the green transition, and can incentivize the lower rated ones to accelerate their transition plans in order to be included in the system. In addition, decarbonization is an important risk management tool, as it results in less exposure to companies that will suffer the most from the green transition and a higher carbon price.

On that note, I am reasonably optimistic about the direction of the European oil and gas sector. Many companies are focusing less and less on exploration and are devoting part of their huge cash flow to investing in renewable energy. They seem to have embarked on a real journey of transition.

Governments must accelerate the green transition and urgently put in place a more accurate carbon price.

judgment day

Baron Victoria

BT pension plan management
UK

Victoria Barron, Head of Sustainable Investments

  • Assets: £57bn (€68bn)
  • BT Pension Scheme Manager
  • Location: London

As for accusations of greenwashing, if I were being generous, I would say this is a rapidly evolving field with limited regulation, standardization and definitional changes, which creates a complicated picture.

If I were less generous, I would say that record money inflows into funds with ESG, impact and sustainability labels have encouraged asset managers to be willfully loose with their definitions.

As always, the truth probably lies somewhere in the middle. Throughout my time in the industry, I have seen many examples of very good practice, but a minority of companies have the potential to harm the reputation of the whole community.

The danger here is that if the asset management industry does not step up and clean up, there is a risk that asset owners will turn their backs on these strategies altogether. It would be a big step backwards to better understand financial risks and find investment opportunities. It would also have an extremely negative impact on the environment and society as a whole. It is in no one’s interest.

At BTPSM, we work with a small number of asset managers, with whom, over many years, we have built very deep relationships.

While we are still on a learning curve, we are working hard with them, so that they understand our net zero goal, our sustainable investing strategy and are clear about what we are doing and more importantly what we don’t want.

“The danger is that if asset management the industry does not step up and clean up, there is a risk that asset owners will turn their backs on them strategies altogether. It would be a big step upside down for the better understand financial risks and find investment opportunities »

Lack of clarity from asset owners about their goals can lead to misunderstandings with asset managers. One person’s definition of sustainability is not necessarily another’s, so asset owners need to ask probing questions, make sure they really understand what they are being told, and ask for points of evidence and proofs of claims. The same goes for consultants. The time for hasty generalizations is over.

Stricter regulation is also essential in this regard. In the UK, the Stewardship Code already requires evidence to back up claims and the Sustainable Finance Disclosure Regulation (SFDR) will help provide greater standardization of what is sustainable and what is not.

All of this will help to give institutional investors more confidence because, ultimately, we all want to be more aware of ESG factors in order to better manage our risks and identify opportunities.

Judgment day is approaching, and asset owners and managers must mean what they say about sustainability.

Our goal is to influence

HannaKaskela1-tyoelakeyhtio-Varma_cropattu


varma
Finland

Hanna Kaskela, Director, Responsible Investment and Sustainable Development

  • Assets: €57.6 billion
  • Finnish Mutual Pension Insurance Company
  • Location: Helsinki

We are aware of the greenwashing allegations made against certain companies and follow the results of the investigations. For our part, we will start looking at climate-related actions across our investment value chain and we will not, for example, use counterparties where fossil fuel companies account for a significant portion of the fees that they generate with customers.

ESG should be implemented in every asset class and emissions should also be calculated across all asset classes. Not just certain parts of the portfolio.

We do not make new investments in companies whose coal-based activities represent more than 10% of their turnover, electricity production or production capacity. The exception to this general rule is for companies that have set a science-based emissions reduction target to help limit global warming to 1.5° Celsius.

We do not finance coal-based projects, nor do we invest in companies that are considering new coal-based investments. Furthermore, we do not invest in the tobacco industry and companies involved in the production and distribution of controversial weapons. We have also strengthened ESG monitoring for certain industries such as alcohol. Of course, two fundamental tools at our disposal are engagement and voting.

Our plan is to engage companies that still use coal to accelerate the dismantling of coal-based operations. In particular in externally managed funds, our aim is to develop collaboration between investors as a tool for mitigating the effects of climate change. Our aim is to influence, independently and together with other investors, the way fund managers take into account climate aspects as part of their responsible investment practices.

As far as regulations are concerned, we believe that all labels proposed or implemented must be based on scientific evidence.

“Our goal is to develop cooperation between investors as a tool mitigate the effects of climate change. Our aim is to influence, independently and together with other investors, the way fund managers take climate aspects into account account as part of their responsible investment practices”