PensionsEurope, the main organization representing European pension funds, says it's still not clear how the industry should balance financial returns against a desire to do more environmental and social investing.
The lack of clarity means pension fund investors representing about $5 trillion may be putting less cash than they otherwise might into sustainable assets. That's as the need for a decisive reallocation of capital toward planet-saving goals grows more urgent as global warming becomes increasingly deadly.
For now, "pension funds in Europe have a legal duty to invest in the long-term best interest of beneficiaries," said Matti Leppala, secretary general of Brussels-based PensionsEurope. "So that's the legal obligation. Whether going as far as possible to deliver on ESG goals would be in contradiction with that fiduciary goal is very difficult to say."
How asset managers treat ESG risk will define the industry for years to come. In Europe, it's already clear some have exaggerated their ethical investing claims as the sector is forced to review its ESG labeling amid a stricter regulatory framework. Meanwhile, hedge funds appear to be lagging behind on ESG investing, a development that hasn't gone unnoticed by the pension industry.