A failure by corporate pension plans to adopt responsible investment policies and practices could undermine sponsors’ sustainability goals, according to the organisations behind the Principles for Responsible Investment (PRI) and the UN Global Compact.
Corporate pension plans were lagging corporates and other institutional investors in recognising the benefits of incorporating environmental, social and governance (ESG) considerations into their investment decision-making, they said.
“While significant numbers of institutional investors and corporations are now integrating [ESG] factors, corporate pension plans remain a sleeping giant,” said Lise Kingo, CEO and executive director at the UN Global Compact, and Fiona Reynolds, managing director at the PRI.
They said that capital from the corporate pension sector needed to be mobilised if the UN Sustainable Development Goals were to be achieved.
Publishing a guide to facilitate greater take-up of ESG by corporate pension schemes, the organisations called on chief executives to encourage funds to mirror their sponsor’s sustainability values.
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.”
The report said that many corporates and leading institutional investors had changed their way of thinking about how company value is created and sustained over time. Corporate executives, for example, were “more likely to consider other stakeholders, including customers, suppliers, and employees, as well as shareholders, in assessing a corporate’s competitive advantage, sustainable growth potential, and longer-term viability,” according to the report.
However, it said corporate pension plans remained under-represented among investor groups that explicitly integrate ESG in their investment decision-making, especially when compared with public pension plans and endowments.
The report noted that, although almost 50% of the world’s largest corporates were Global Compact signatories, only 10% of their pension funds were signed up to the PRI.
It gave Unilever as an example of alignment between the sponsor and its pension scheme. It said Unilever had transformed itself and was widely regarded as a world leader in sustainability, and that its pension plan, overseen by its internal management company Univest, recently became a PRI signatory with the support of its CIO, Mark Walker.
According to the report, in many corporate pension plans ESG was still perceived as not adding value to investment decision-making. It said these views were outdated and that responsible investment had many benefits, such as boosting sponsor credibility and supporting deficit management.
The Global Compact is a UN initiative based on a set of CEO commitments to 10 key sustainability principles.