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With the recently adopted Aartsen motion, the House of Representatives is sending a strong signal to the pension sector that it is not up to them to take a political stand by investing in an activist or idealistic manner, but that they must primarily focus on realizing a purchasing power pension.
This is a striking motion from a government that regularly finds the pension sector to finance politically-related matters. Such as recently for investments in defence and the arms industry. No politics, unless it suits us. The question is whether such financing is in the interests of the pension funds’ participants. Ensuring this is still their primary task.
In his opinion piece of June 12, Ed Groot sees an implicit contradiction in the motion between sustainability and returns. I would like to clear up this misunderstanding. Many studies show that sustainability does not come at the expense of returns and can even have a positive effect on returns. This is not illogical, because in order to make sensible investment decisions, it is at least as important to look carefully at the risks. With higher risks, financiers expect a higher return. The real tension therefore lies in the relationship between risk and return.
Pension funds and other institutional investors are increasingly taking into account risks resulting from, among other things, climate change or loss of biodiversity. This not only shows financial soundness but is also mandatory according to (inter)national regulations.
Companies that suffer from such risks simply become riskier to invest in. The same applies to companies that contribute to the causes of these risks. Consider companies that do not operate in line with international treaties such as the Paris Agreement. Such political treaties have been concluded by countries that have committed themselves to them.
In addition, the EU already determined in 2017 that taking sustainability risks into account is an explicit part of the fiduciary duty of institutional investors. And that’s a good thing. Especially when it comes to securing a ‘pension with purchasing power’ after a 40-year working life, pension funds cannot afford to opportunistically pursue short-term returns and turn a blind eye to climate-related risks that do not exist. One thing is clear: in a 5-degree world, no more money is earned and such a thing as purchasing power certainly no longer exists.
This article was previously published in Het Financieel Dagblad.
