Three of the largest pension funds in the world – the UK’s Universities Superannuation Scheme (USS), the Government Pension Investment Fund (GPIF) in Japan and the California State Teachers’ Retirement System (CalSTRS) in the US – have joined forces to push for a long-term investment approach in a bid to create value.
In a joint letter, the trio called on fund managers and corporate companies they invest in to ditch short-termism and to target sustainable economic growth.
The document said “companies that seek to maximise corporate revenue without considering their impacts on their stakeholders – including the environment, workers, and communities – put their long-term growth at risk and are not attractive investment targets for us”.
The schemes stated that as asset owners, their responsibility is to “provide for the post-retirement financial security of millions of families across multiple generations,” and that, as such, they “do not have the luxury of limiting our efforts to maximising investment returns merely over the next few years.”
In the letter, the trio quoted research by Moody’s Analytics, whci showed that climate change alone would have the potential to destroy $69trn (€62trn) in global economic wealth by 2100.
The letter also said individual firms and industry groups are already rethinking their purpose and recognise issues such as the environment, society and employees need to be considered within their corporate vision and strategy.
BlackRock announced at the beginning of the year plans to place sustainability at the centre of its investment approach, as it foresaw climate change as having a profound impact on the pricing of risk and assets around the world.
“We welcome these efforts but recognise that we still have a long way to go,” the three pension funds stated, adding that environmental, social and governance (ESG)-related disclosure and analysis “remains the exception rather than the rule”.
They said: “As asset owners, however, we strive to act as stewards of long-term capital, creating sustainable value by supporting companies with a clearly defined, long-term vision for growth.”
The three pension funds, believe that asset management companies that integrate ESG factors throughout their whole investment process, vote according to the mandate to which they have pledged, and are transparent about their level of corporate engagement, demonstrate that they are committed to long-term value creation, in line with the trio’s interests.
The document – which was produced by Hiromichi Mizuno, GPIF’s CIO, Simon Pilcher, USS’ CEO, and Christopher Ailman, Calstrs’ CIO – said they prefer to build and maintain relationships with asset managers that “fit this description over those who do not, and pledge to work with these partners to hold them accountable and ensure they deliver on the committments they have made”.
USS, GPIF and CalSTRS urged both their partners and the companies they invest in to rethink their strategy and enhance their disclosures “so that we can collaborate in generating and enhancing long-term value”.
GPIF announced in January a partnership with Inter-American Development Bank (IDB) that focused on social bonds and last year the scheme invested in green, social and sustainability bonds totalling more than $3bn.
In December the Tokyo-based fund also decided to suspend stock lending on its multi-billion dollar foreign equities portfolio in a move to better “fulfill its stewardship responsibility”. The decision would have an immediate global impact on short selling, which relies on stock lending or borrowing to do immediate trades on-market.
Just last month, USS’s investment arm decided to close its internal developed markets equities team as part of a shift away from traditional stock-picking in these markets to an approach more focussed on the impact of environmental, social and other long-term factors.
At the beginning of the year, USS submitted a letter to the Securities and Exchange Commission (SEC), criticising a proposed requirement that proxy advisors share advance copies of voting recommendations with companies before passing them on to the investors that are their clients.