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John Davies
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Posted: Mon Sep 21st, 2009 10:42 |
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Jill Solomons' research into the level of awareness of climate change issues among pension fuind trustees, recently published by ACCA, suggests that there is a developing sense, among some trustees at least, of the connection between the changes that are happening in the physical environment and the long-term commercial health and prospects of businesses. Given the particular nature of pension funds, it is only to be expected that trustees will show a heightened interest in any issues which are likely to have a strong bearing on the future costs and risks of doing business, on the ways in which business will be carried out and on the sectors which are likely to rise and fall in terms of investment attractiveness. If climate change does have the dramatic impact that the scientific community is currently predicting, it will be vital for all those involved in making long-term investment decisions to factor in concerns about the level of preparation, on the part both of individual companies and whole economic sectors, for addressing and mitigating the challenges presented by climate change. It is encouraging that these issues are starting to be taken on board by pension fund trustees. It should be remembered, though, that the burden of responsibility that is currently imposed on pension fund trustees is considerable, and made all the greater by current investment conditions. Many trustee boards will find it difficult, as things stand, to see the long-term picture when they have their hands full coping with funding challenges on the one hand and the demands of the law and regulators on the other.
- John Davies, Head of Business Law, ACCA
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Diana
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Posted: Sun Oct 25th, 2009 19:37 |
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I did not read the article, but I would like to submit a response.
I work for an organization in the US that is responsible for managing funds provided by employers in order to secure benefits for their employees - such as health, legal, training and pension benefits. Our Pension Fund took a massive hit last year as the funds are heavily invested in the stock market. That sent our board of trustees scrambling to find ways to recover, because we could not stop paying out funds to our pensioners and others on disability.
This situation opened the eyes of the management and trustees to the fact that progressively better investment strategies are required in order to stay above water and they have embarked upon initiatives to get more out of the fund advisors we currently use as well as broaden their advisory base by using firms with specialties, etc. There are costs associated with these initiatives, but the cost must be borne if we are to fulfill our obligations.
Investment advisors are expected to "keep watch" over the economic climate and act in anticipation of future events. If climate changes are expected to impact the financial markets, advisors must be alert to even the slightest hint of such impact and develop strategies early on to identify the effects and set measures in place to facilitate any necessary transitions, to give the greatest benefit to their investors. Of course, the investors are the ones to bear the brunt of the costs, but most see it as unavoidable.
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sgman
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Posted: Fri Oct 30th, 2009 18:20 |
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While Climate Change is an issue we must not be swept up in a mania akin to that of the Dot.Com boom or the securitisation and structured financial products boom of the last decade.
There are two key aspects to this:
1) In what ways can Pension funds benefit from climate change. Ultimately pension funds are there to provide a retirement to their members and not to engage in an act of financial larceny to seek approval from opinion-makers. Climate change will mean beneficial tax breaks for investment in renewable energy as well as subsidies that can lower the cost of capital and boost the return on capital employed. This is a responsible way to view climate change investments.
2) Risks of asset allocation selection. Selecting investments in either CO2 emissions trading or equities increases the portfolio risk. Over reliance on equities can lead to devastating consequences for pension funds which can run up massive deficits. Any attempt to restructure investment towards climate change-friendly companies whose values do not reflect the underlying value of the company is not responsible.
The danger is that climate change will adversely affect investment strategies rather than allow for a serious analysis of available opportunieis. If we look at the investment decisions in renewable energy in Spain or Germany, then we see in retrospect that renewable energy investments grew into an unsustainable bubble.
Climate change must be looked at as an opportunity for rational investment rather than as an attempt to curry favour with the media or columnists or to feel better about ourselves. That is the road to pension deficits and future government bailouts of pension funds.
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