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IPE special report May 2018

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Schemes must measure performance through 'extra-financial' factors

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  • Schemes must measure performance through 'extra-financial' factors

UK - Pension funds must look to measure asset performance through extra-financial factors and not only benchmarks, according to a new study examining the role of sustainability in the future of investment by Towers Watson.

At the launch of 'We need a bigger boat - Sustainability in investment', global head of investment content Roger Urwin said that while the one-year benchmark was becoming the norm among investors, it was necessary to persuade institutionals to invest for the long term.

"Strategies need to factor in the deleveraging cycle, under-powered economic growth, resource scarcity and ageing demographics in order to reach their performance potential," he said.

He referenced Northern European institutional investors as leading the field in this regard, saying fund statements often included a social investment emphasis.

Referencing two of the Netherlands' largest pension fund providers, he said: "A good example would be organisations like PGGM and APB that work over certain pension plans that have a dual mission, unheard of in the UK."

Urwin invoked PepsoCo chief executive Indra Nooyi, who has argued in favour of socially conscious corporate action though her 'profits with purpose' slogan, by saying that a similar ethos should be applied to the institutional investment field.

Noting that he was offering his personal views rather than those of the consultancy, Urwin said: "'Profits with purpose' is basically saying that not all profits are born equal.

"I think that's true, and it's a very important factor here because some profits are generated at the expense of others. If you look at the banking sector, [its] profits were born at the expensive of everyone else at this table."

He said the industry should look towards implementing 'performance with purpose' as its next serious development, saying it would have "huge bearing" on global development over the next 20 years.

"The benchmarks that drive funds must continue to be finance-related," Urwin added, "but the way we measure the outcomes can include so-called extra-financial factors, as well as pure financial factors."

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