European pension fund executives say they are less concerned about the prospect of another global recession and more focused on identifying companies that have sustainable business models to secure positive returns.
Noting the decreased "firepower" of central banks globally, European investment officers who attended Pensions & Investments' WorldPensionSummit held Oct. 22-24 at The Hague said companies could be facing challenges as a result of the global economic slowdown.
With rates at ultra-low levels, the scope to cut or normalize rates is curtailed for central banks, they said, adding that an increase in rates could contribute to higher levels of bankruptcy.
"The global financial crisis didn't clear out fading companies quite as effectively as it should have" so the next slowdown will have a different impact as the effectiveness of central banks is reduced, said John St. Hill, deputy CIO of National Employment Savings Trust, the £8 billion ($10.3 billion) London-based multiemployer defined contribution plan.
Speaking on the same panel, Eloy Lindeijer, CIO of PGGM, the manager of the €238 billion ($263.6 billion) Pensioenfonds Zorg en Welzijn, Zeist, Netherlands, agreed. "The monetary policy has been so loose that it has become a source of instability," he said, expressing hope that Christine Lagarde's arrival Nov. 1 as the new president of the European Central Bank will mean a review of the bank's monetary policy.
But speakers agreed that neither monetary policy or economic slowdown should be investors' main concern.
"There is no point in having a large (retirement) pot if there is no planet to spend it on," Mr. St. Hill said.
Instead of focusing on recession, Mr. Lindeijer called on other asset owners to help develop a common "intellectual property" and share it so that investors can be more successful at harvesting the benefits of long-term environmental, social and governance investing.
"We want to identify the companies which contribute to (the United Nations') Sustainable Development Goals through (PGGM's) sustainable development investments' initiative, which launches Jan. 1," he said.
The initiative aims at developing a common methodology to find companies with sustainable business models and conditions under which other companies could be made to have a more resilient future, Mr. Lindeijer said.
"We look forward to expanding that universe with other investors," he said.
However, asset owners based outside of Europe still question the link between climate change and company performance, said Tracy Stewart, corporate governance manager of research at the $206.9 billion Florida State Board of Administration, Tallahassee.
"There is not a lot of faith in the idea in the U.S. that (ESG) would lower risk and or commensurate to a greater return," she said, speaking on a separate panel.
Ms. Stewart said U.S. asset owners differ from European peers in how they view climate change, adding that, for example, some of Florida's staff asked her whether the selling of certain equities by ESG-focused investors could result in opportunities to invest in efficiently priced companies.