This quarter’s Room151 LGPS webinar sees experts explore issues such as green growth, stewardship and whether the pandemic will usher in a new form of capitalism. Aoifinn Devitt and Doug Heron offer their insight.
Aoifinne Devitt
Green growth
Investors should play a central role in a green recovery by continuing to demand climate-change related commitments from their portfolio companies, as well as through seeking out, and being willing to back, start-ups and new ventures in areas such as renewable energy and investments that make a positive impact.
We have already seen the impact of solidarity with 631 investors, with more $37trn in assets under management, signing the Global Investor Statement to Governments on Climate Change. This document calls for urgent implementation of the goals of the Paris Agreement, while in Denmark pension funds have pledged to invest a further $50bn in green investments by 2030.
Long-term thinking comes naturally to pension funds such as those in the LGPS, and now they must return to this discipline to overlook the current short-term noise to stay laser focused on the broader goals.
A national infrastructure strategy can present compelling investment opportunities for collaboration with other LGPS funds and institutional investors as well as possibilities to generate inflation-linked cash flow. But it must hold its own against every other investment opportunity for consideration.
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While national infrastructure investments can be local, and impactful, they must, arguably, be held to even more robust investment standards than would normally apply to avoid the appearance of conflict.
A new kind capitalism
The devastating effect of the Covid-19 pandemic on public health and economic activity has been felt anything but equitably. The pandemic has highlighted the importance of the “social” concerns in ESG, as good corporate citizenship, an appreciation for the dignity of employees and a need for forbearance, when solely focusing on the bottom line, comes to the fore.
The current crisis is felt at an essentially personal level, so we project our own personal insecurities, fears and concerns onto the companies we deal with and read about.
In our investments, however, returns have never mattered more. There is a hope that good corporate citizenship will translate into better businesses and better shareholder returns, but it is difficult to know at this stage whether the awareness of these social aspects will be long-lasting.
For some time institutional investors have increasingly looked to longer time horizons to extract an illiquidity premium, and there has been a shift to more collaborative and extensive partnerships with money managers.
Now just as investors have publicly demanded commitment to environmental targets from their investee companies, maybe conditions of that collaboration will include social concerns around minimum wages, working conditions and a broader contribution to society.
Doug Heron
Stewardship
Lothian Pension Fund has always tried to be at the forefront of transparency in our approach to responsible investment, with our commitment to Principles for Responsible Investment, the UK Stewardship Code and more recently in publishing figures aligned to the Taskforce for Climate-related Financial Disclosures (TCFD).
Our new public Statement of Responsible Investment Principles is a natural next step in that approach. This is the first edition of a working document that will evolve over time to best reflect how we wish to act as responsible asset owners.
We also hope that this could be the start of an open conversation around collaboration that will lead to other funds implementing similar statements and we’re happy for this document to become a basis for wider adoption of such standards throughout the Local Government Pension Scheme space.
The team at Lothian Pension Fund take our responsibilities as an asset owner very seriously, and we believe that asset owners have a unique ability in driving the changes in governmental and corporate behaviour to bring about an acceleration in the sustainable energy transition and a decarbonisation of the global economy.
Aoifinn Devitt is an independent advisor to LGPS, while Doug Heron is chief executive at Lothian Pension Fund.
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