Wednesday, 14 March 2007

Pensions, climate change and short-termism

It's the NAPF investment conference this week, and the keynote speaker at this year's bash is unsuccessful Bush-defeater Al Gore. I'm assuming most people will know this but in case you don't, Gore is actually involved in fund management these days through an outfit called Generation Investment Management. He runs it with a guy called David Blood so the outfit is sometimes 'hilariously' referred to as Blood & Gore (oh my sides).

In any case, Gore's speech went big on the need for trustees to think long term, and specifically to try and get a grip on climate change. The quote below is taken from the Reuters report.

Gore, chairman of a UK-based sustainable investment management company, Generation Investment Management, said the pensions market was suffering from "short-termism" in a bid to chase higher returns.

"Thirty years ago, in my country, the average holding period for equities was seven years and now the average mutual fund turns over 100 percent its portfolio in less than 11 months," he noted.

Gore said research showed that most company pensions had still not conducted a "careful analysis of the assumptions on longevity built into their plans", and that sustainable investing had a "hand and glove linkage with long-term investing".

"If you do truly invest on a long-term basis, then it's easy and more profitable to fully integrate sustainable factors into your analysis," he said.

"We have everything we need to make this transition with the possible exception of the will to act, but the will to act is a renewable resource," he added.

Actually this has been on the radar of the more responsible investors for a few years now. For example Mercer Investment Consulting issued a report on the subject 18 months ago. And the Institutional Investors Group on Climate Change has been going even longer. And the TUC put out a very short paper on the subject last tear.

What trustees themselves can actually realistically be expected to do is less clear cut. Most of the info I have seen to date doesn't given them many practical options bar asking their fund managers a few questions (which is the answer we all seem to provide for trustee engagement with FMs over any CSR issues). And I'm a bit sceptical about how much of a progressive force financial analysis can be. It is not a given that climate change analysis must be long term. I remember reading a while back about an SRI hedge fund for example.

Might be intersting to see if Generation has any views on the DSM proposal, since it addresses exactly the question of increased trading of shares that Gore criticises.

No comments: