On April 22st the EU Directive on the activities and supervision of institutions for occupational retirement provision (the IORP II Directive) was signed into Irish Law. At the heart of this legislation is the provision of good governance and risk management to allow for pension investing to have environmental, social and governance considerations - as well as to provide full transparency.
Richard Kelly, head of client business with responsibility for asset management in Legal and General in Ireland (LGIM), notes that LGIM has been operating in this field for many years, even before the directive was signed into law.
“Back in the 70s, we made sure that governance was at the core of our pension advice. We’ve done this from a responsible investor perspective,” he says.
“Environmental investing has really grown in recent years - and is driven by both the bottom up and the top down. For example, COP26, the UN Climate Change Conference, is being held next month in Glasgow and increasingly corporations are looking to transition to a low carbon environment.”
He points out that despite the Covid lockdown total carbon emissions only dropped by 6.7 per cent in 2020.
“We need to decarbonise much faster and that realisation is being helped by bottom up push, which I call the Greta Thunberg factor. We are really focused on looking at net zero investments.”
Sandra Rockett, title with Irish Life, concurs with LGIM on better governance:
“ESG factors are the additional criteria we consider alongside financial factors when making an investment decision. This includes how a company manages its use of fossil fuels or how it treats its employees. It provides a framework to evaluate investments around environmental, social and governance issues and to what extent they are exposed to sustainability risks or how well positioned they are to capture opportunities as we transition to a more sustainable economy,” she says.
The bottom-up push is also important to Irish Life.
“While sustainable investing has been an important topic for a number of years, we’re really seeing a pick-up in consumer interest recently. People want to be able to access funds which enable them to have an influence on how companies behave and the impact their investments have on the broader environment,” says Ms Rockett.
Irish Life has conducted their own research into well governed companies. “Our experience tells us that sustainable, resilient, well-run companies are more likely to perform better in the long run. In the current environment, companies that do harm are riskier places to invest in for the long term because they face a future of increasing consumer criticism, government regulation and financial penalties.
“So, investing in responsible businesses means customers can build a better world while giving their money the opportunity to deliver better returns and manage risk at the same time,” she says.
Like Irish Life, Mr Kelly and LGIM also conduct their own research where they rank 16,000 plus companies using 28 different data points from carbon emissions to gender diversity at board level.
“Ultimately the decisions we make are always made with our customers best interests in mind. We want to make sure our portfolio is fit for purpose for the next 20 to 30 years,” says Mr Kelly.
Ms Rockett concludes: “We are also very aware of the responsibility we have as investment managers to represent the voice of the customers who trust us with their money. Whether it is around climate, employee rights, clean water or any other ESG issues, we vote on important issues on their behalf. We also engage with companies to influence and improve their ESG behaviour.”
Alignment on Green Pensions will appear to allow for better choices for pension holders going forward.