CAMRADATA has published a new whitepaper entitled, Responsible Investing – the new normal, which considers how Local Authorities can balance responsible investing with the need for investment returns for Local Government Pension Schemes (LGPS).The whitepaper shares insight from investment managers and pension managers who attended a recent Local Authority Responsible Investment roundtable. Participants included, Investec Asset Management, Wellington Management, Enfield Council, LPP (Local Pensions Partnership) and UK Local Authority Pension Funds.
The event took place in London one year after the city’s mayor declared a climate change emergency, and after several London boroughs followed the mayor’s lead and formally recognised a climate change emergency.
Regulatory nudges and campaigns by stakeholders on responsible investing have accumulated. The UK government, for example, has just introduced a form of ‘comply or explain’ on ESG policy for pension funds.
The panel considered what Local Authorities should be doing to help the environment and how they can become more responsible investors, while safeguarding pension returns.
Sean Thompson, Managing Director, CAMRADATA, says: “It’s estimated that GBP280 billion is held within Local Government Pension Schemes and with this comes great responsibility regarding both their members and the planet.
“However, many schemes are slow at adopting ‘clean’ investing principles. Our roundtable looked at why this is the case, the challenges facing LGPS and what the solutions are, as well as considering what role asset managers can play in developing responsible investment strategies.”
Key takeaway points were:
• Understanding carbon emissions is complex. More data are required before asset owners can take a truly holistic picture of the environmental impact of each company.
• There is no standard ESG assessment process. This means ESG ratings agencies each have their own scoring system, which can confuse asset owners seeking greater understanding.
• In response to the above two conditions, the active managers at the roundtable recommended owning a select portfolio of thoroughly researched companies as a clearer, more measurable way of investing responsibly.
• The ten largest owners of renewable energy in the world are all utilities – but this does not mean they are entirely green.
• Investors need to understand such linkages and relative shades of greenness even within single corporations when deciding what ESG means and where to put their capital.
• The new UK policy of pooling public-sector pension investments is expected to help shape mandates most consistently and cohesively: to create teams with the facility to research the market more thoroughly to ultimately improve funding levels for all.
The roundtable ended with a discussion on active and passive strategies and whether these strategies can co-exist when considering ESG and low carbon factors.
Sean Thompson, Managing Director, CAMRADATA, says: “Both strategies have got off to promising starts, but the pension fund managers on the panel warned that these are challenging times for active management. For many pension funds, the risk of underperformance of the index seems to remain more pressing than the appeal of actively-managed outperformance.”
