A plastic water bottle might not prompt most people to engage in lighthearted employee ribbing, but for Pedro Guazo, the CEO of the office of investment management at the United Nations Joint Staff Pension Fund, it did.
As he watched the office's communications officer, Pilar Lagos, pull a mini water bottle out of her bag during a meeting, he remarked: “Is that,” he asked playfully, “a single-use plastic water bottle?”
Sitting on top of the large conference room table was a pitcher of water, along with a set of glasses, from which employees and guests could serve themselves and avoid using any plastic.
Lagos rolled her eyes and explained that the plastic bottle of water was given to her during an earlier meeting, and she didn’t want to throw it out.
The exchange was in jest, but for Guazo and the pension fund he runs, sustainability is no laughing matter. In fact, the pension fund prides itself on being a leader in sustainable investing. In addition to excluding investments in weapons and tobacco from its portfolio, the pension fund is a member of the U.N.-convened Net-Zero Asset Owner Alliance, a member-led initiative of institutional investors committed to transitioning their investment portfolios to net zero greenhouse gas emissions by 2050. It also participates in climate investor networks, including Ceres Investor Network and Climate Action 100+.
In this second installment of Face to Face, Guazo discusses the pension fund’s stand on sustainable investing amid strong political headwinds against the practice.
Q: Let’s talk a little about sustainability. As you know, many pension fund and asset managers have been under a great deal of pressure to back away from ESG investing and now even DEI — or diversity, equity and inclusion — initiatives. Will the pension fund reconsider its thinking on ESG and sustainability given the backlash?
A: No, because the way we have structured it, it's not ideological, you know what I mean? It's good investment practice. One of the things I like to do when something is challenging me is going back to the basics and thinking, why did we start this? I went back all the way to 2005 — 20 years ago.
Some people think that "wokeism" is a new trend, but it’s not. That is why it's very important to go back to the basics. In 2005, when the PRI, the Principles of Responsible Investment, was created, some 30 or 60 institutional investors, insurance companies, banks and shops got together and they said we should, as a good practice, consider the environmental, social and governance issues in our investment analysis because that creates risks, of course, and opportunities.
When you go back, remember what was the discussion in the corporate world? We had oil spills at that time. We had the Nike case with the child labor in Indonesia that almost broke Nike. And we had the Enron scandal involving fraud and bad reporting. Think about that — oil spills, environmental; child labor, social; and the fraud scandal, governance.
So that was what was happening in the corporate world back then, between 2000 and 2005. So the investors got together, saying that these are risks that we probably are not considering in our investment process. They got together and they said, let's agree on six principles. Basically the first one is we have to consider the ESG factors in our investment analysis. So again, it's not dogmatic. It's just a good practice, and we have embedded it in our investment process so that all the investment officers analyze potential sales, costs and risks.
If the company has a scandal brewing in a mine, or whatever, it's a risk. If you have a lawsuit because they're dumping pollution in a certain lake, that will have a cost that will hurt their returns and then your portfolio’s return. That is why we're not changing because going back to the basics, it's good business practice. It's good investment practice.
Q: So, there’s no turning back?
A: No.
Q: Do you actively engage with companies to get them to change?
A: We vote and we have a whole proxy voting scheme. Engagement is complex because we have 7,000 companies in our portfolio. You cannot effectively engage more than five companies on a yearly basis. You try to ask questions as part of the investment relationships — calls and all that stuff — but it's slow. The whole engagement thing is pretty slow and it's little by little, but we keep trying.
