Implementing a responsible investment strategy need not be at the expense of strong returns and can actually help pension funds make better investment choices, Swedish pension funds heard.
Speaking in a panel debate at the Pension Fund Forum in Stockholm, hosted by GP’s parent company Incisive Media, Aviva Investors’ head of social and responsible investment Peter Michaelis said environmental, social and governance issues were at the centre of most of the so-called unpredictable shocks or events to have hit stock prices over the past ten years.
He added: “You just need to look at Enron, BP, Lehman Brothers, General Motors – I believe all of these would have been much more predictable if you were looking from an ESG perspective.
“In contrast, companies which aimed to be more sustainable proved to be more resilient. HSBC performed much better than Lehman Brothers, BG Group did a lot better than BP and Toyota did a lot better than General Motors. These are all companies in exactly the same sectors but displayed better sustainability. Investing in companies with better sustainability in their operations is a more secure investment.”
Michaelis also claimed the pension fund industry collectively held “immense power” and had the ability to act as guardian or overseer of the investment world.
“Just imagine if in 2005 the pensions industry as a whole had said, ‘actually, we’re not going to take any of these collateralised mortgage obligations, we don’t see them as being fit for our members in terms of investments’,” he said.
“That would have been hugely beneficial for the whole financial industry, hugely beneficial for society and hugely beneficial for your members. Yet it’s clear as an industry we didn’t carry out that role of guardians.”
Also on the panel was Damien Fruchart, senior analyst with Ethix SRI Investors, who claimed SRI was also gaining ground in Asia.
Asked by a delegate whether SRI was being applied globally or just in the west, he said: “There’s no doubt it’s a bigger thing in the west, but it is gaining traction in Asia. China has demanded its banks introduce green policies, as has Japan.
“Whether or not they are better or the same principles as those in the west is hard to tell.”
Meanwhile, SEB chief economist Robert Bergqvist said Europe cannot expect to recover to the levels of economic growth seen before the crisis, because debt had been a major force for that growth.
He added: “We have the highest level of indebtedness for 70 years in Europe and I can’t think of any good reasons why. I think interest rates have been too low and the banks have been too creative.
“If I look at the last ten years just prior to the crisis, the creation of debt and rising asset prices were both factors which contributed to the growth in the economy.
Looking at the next five to ten years we cannot expect that debt will continue to increase, it’s impossible as we have removed the ability for it to do so. I cannot see that we are going back to the same economic growth we enjoyed in the ten years before the crisis, because that debt was a key part of fuelling that growth.”
Instead, globalisation will be the driver for the growth of the economy in the future, Bergqvist believed.
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