At the AFL-CIO in Washington DC today, three climate bonds folk are speaking on a panel about "Investments for a sustainable future" at a Committee for Worker's Capital conference: Sean Flannery, talking about our Bonds & Climate Change report, is a member of the Climate Bonds Advisory Panel, and Chris Davis from Ceres INCR and Brian Rice from CalSTRS both represent Climate Bond Standard Board members.
Pension funds are of course critical to what we're doing; they are "asset owners" at the top of the financial daisy chain, able to tell fund managers and banks what to do because they are the main end investors (on our behalf).
For union pension trustees at the conference we've prepared a reminder flyer on "7 Easy steps to move pension funds from short-term to sustainable", along with the bonus "7 steps for pension fund staff". We hope they'll push their funds along the road to better understanding the opportunities in green investments - especially climate bonds. Download the printable PDF here, or simply read below.
7 Easy Steps to Move Pension Funds from Short-term to Sustainable
For Trustees
1. State it. Declare the fund’s commitment to buying green investment products through a Statement of Investment Beliefs (subject to available yield and your ratings requirements).
2. Inform yourself and ask the right questions
3. Set a green asset allocation. Determine a minimum allocation of green investments within the fund and a time line for achieving this allocation (again subject to available yield and your ratings requirements).
4. Allocate resources. Allocate sufficient meeting and agenda time and other resources to ensure a balanced discussion and analysis takes place on long-term, as well as short-term, issues. This is a marker of a sustainable investment approach.
5. Request experience when selecting managers tenders. Ensure that your fund selects investment managers with adequate expertise on climate risk and experience in managing green investment portfolios by requesting it in tenders. This is also recommended in the CWC Investor Brief “Climate Change Risks and Opportunities for Investors”.
6. Incentivize managers. Pension funds need to be clear about their investment beliefs and their attitude to long-term investment – and translate beliefs into the mandate. Then, incentivize managers to identify and invest in long-term and sustainable investments that fit with the fund’s return requirements (OK, I admit this one isn't that easy! Seek advice; share ideas with other funds). The objective is to ensure incentives are aligned in the best interest of young, future beneficiaries as well as for those in or approaching retirement.
7. Report back. Require your asset managers to report on long-term risks and opportunities relating to sustainable investments both from a perspective of today’s and future beneficiaries. Include long-term performance indicators that ensure benefit for both future and current beneficiaries.
7 Steps for Pension Fund Staff...
1. Evaluate risk. Evaluate the climate risk in your portfolio using the guidance of actuaries or other professionals with climate expertise.
2. Inform yourself. Ensure that you have the core competencies to understand environmental risks and recognize opportunities within this space. This may include participating in training sessions.
3. Look for new products and opportunities. Green products exist already, and not just in equities. You are responsible for finding new green investment products in all asset classes. Look for the bonds that will be tagged as ‘climate bonds’ on Bloomberg terminals as of 2014.
4. Allocate time. Ensure sufficient time and resources are devoted to discussing long-term and sustainable investment approaches within the fund.
5. Allocate investment. Allocate a defined portion of your portfolio to green assets, such as clean-tech equities and green or climate bonds (subject to available yield and your ratings requirements).
6. Measure long-term performance. Ensure that you are measuring and evaluating the effectiveness of strategies for both current and future beneficiaries.
7. Bust the myths. The investment industry is awash with green investment myths: such as that green performance comes at the cost of financial performance, climate infrastructure is a cost, all ESG (environmental, social and governance) factors are non-financial, etc. Leading pension funds should pioneer new mind-sets: that ESG indicators can drive financial performance, that green investments can enhance financial performance, that climate infrastructure is about investment, not cost.
