Facing Finance, a Berlin-based non-profit organisation, is urging German pension funds to step up their efforts to comply with environmental, social, and governance (ESG) policies.
“In the pension funds sector, even more than in the banking sector, there isn’t an interest in sustainability.
This is also visible in terms of efforts that are made to screen investments,” Thomas Küchenmeister, managing director of Facing Finance, told IPE.
Not much has changed since 2016 when IPE reported that ESG was not a top priority for German occupational pension funds.
The German pension funds association said back then that ESG had “taken a back seat” amid the prevailing low interest rate environment.
In a recent study, Facing Finance examined the performance of 18 of the largest German funds, including Allianz Lebensversicherung AG, Bayer-Pensionskasse VVaG, Hamburger Pensionsrückdeckungskasse, and Sparkassen Pensionskassen AG, among others.
It found that only seven pension funds followed specific exclusion criteria for their investments, with most excluding investments to weapons, while only three of those schemes exclude investments in coal mining and electricity, even though investment decisions depend on revenues thresholds (25-30%).
A small portion of the participating funds are members of the UN Global Compact, and only three pension funds have committed to the UN’s Principles for Responsible Investment (PRI), according to the report.
Facing Finance was not able to find evidence for 10 pension funds on how their portfolios are regularly evaluated against ESG criteria.
Küchenmeister said pension funds should contribute to building a sustainable society ”through investments in companies that are not in conflict with the goal to protect the environment,” for example.
The state, on the other hand, should enforce regulations that define a minimum standard in terms of international legal obligations when it comes to implementing an ESG strategy, such as for example the Paris Agreement, he added.
“This may lead to redirecting investments towards renewable energies, or at least avoiding investment in companies that damage the environment or that violate human rights,” Küchenmeister said.
According to the survey, among employees of occupational pension schemes, 69% of the respondents had no knowledge of whether their pension funds respect ESG policies, while only 12% did.
Facing Finance is, therefore, urging German pension funds to provide comprehensive information on their ESG policies. Almost all respondents (92%), in fact, wanted to know if their pension funds respect ESG criteria.
Küchenmeister said pension funds should be legally forced to provide more information relating to the direction of their investments and their social and environmental impact to their members.
The report (in German) can be found here.