Pension Funds Buy In To Sustainable Investing

Any time a new evangelist for sustainable investing emerges it is good news for investors, the environment and proponents of corporate social responsibility. It means that investors are receiving more guidance about socially responsible investing.  It means that more investment dollars are directed towards companies and mutual funds that support a green economy. And it makes stakeholders such as investors, consumers, employees and activists more aware of what companies are doing to lessen their environmental footprint.

The Guardian newspaper in the United Kingdom is heralding the news that Roger Urwin, the head of global investment content at the investment consulting firm Towers Watson, has become a believer in sustainable investing, the practice of incorporating environmental and social concerns into investment decisions. In particular, Urwin has been writing and speaking publicly of late about why Towers Watson’s pension fund clients should adopt the sustainable investing approach.

It’s a significant development because of the weight that pension funds can throw around. The hundreds of millions, if not billions of dollars in the U.S. and pounds in the U.K., can be directed in ways to promote a sustainable society if the managers of those funds buy in – literally and figuratively.

Urwin has said that in the past many of Towers Watson’s pension fund clients weren’t persuaded that a sustainable approach was preferable to other investment strategies. “I think this subject is bought rather than sold, and to date asset owners have to come to the conclusion that other things matter more,” he told in an interview.

But now he’s speaking in more positive terms about sustainable investing and they’re listening. His attitude has changed as he’s thought about “inter-generational” investing and the world that will be available to his children and the fallout from the global financial crisis.  He sees sustainable investing as meeting ‘the needs of the present without compromising the ability of future generations to meet their own needs,’ a concept of 1987’s UN-backed World Commission on Environment and Development.

But even altruistic pension fund managers ask: where’s the investment opportunity? Urwin sees growth potential in the present economy by developing a portfolio of companies that are making a better future. Where we once had the information technology revolution, he argues, we now have a revolution occurring in environmental technology.

So if the concept of sustainable investing needs to be “bought rather than sold,” meaning investors decide it is worth more than other investing strategies, here’s what Urwin is selling: if climate change and resource degradation progress at their expected pace as judged by current science, then the return to investors on their capital in the future is going to be diminished. Companies are forced to divert resources that could be used for expansion or research instead to fixing and adapting to those conditions. But Urwin argues that you can create a hedge against that trend by creating a portfolio of investments that is focused on companies in energy efficiency, alternative energy, and other related fields.

Greater involvement by private pension funds with sustainable investing, sometimes called socially responsible investing, will add to the momentum that strategy has generated since the early 1990s. According to the Social Investment Forum, socially responsible investing is thriving in the U.S., growing at a faster pace than the broader universe of all investment assets under professional management. Roughly 11 percent of assets under professional management in the U.S. – nearly one out of every nine dollars – are now involved in SRI. Many of those dollars have been invested by public employee pension funds, such as the California Public Employees’ Retirement System, the largest public employee’s fund in the country.

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