As 2020 nears, investors and money managers need to be more critical about what is considered sustainable, which is being made all the more difficult by "noise" affecting signals in financial markets, delegates heard Wednesday during Pensions & Investments annual WorldPensionSummit in The Hague.
"We are in a period when not much is happening but (then) everything is going to happen at once," said John Elkington, pioneer of global sustainability movement and founding partner and executive chairman of sustainability advocate Volans Ventures Ltd., in a keynote speech.
"In an ideal world, the pensions sector would be the spearhead of long-term sustainable finance," Mr. Elkington said.
And he warned: "We are in the period of great (political) unraveling, when it is going to get substantially worse before it gets better. The old order has to come apart in order to build a new one."
Investors will face having to determine signals as circumstances of policy, climate and business are set to be changing much faster, Mr. Elkington said. "We are going to see a profound shift in a sustainability agenda. Responsibility is nice, but it is not enough. ... We need environmental, social, political and importantly environmental regeneration."
And he pointed to a need to reset capitalism as industries will be disrupted by technology. One example cited was autonomous vehicles, which will profoundly disrupt how people travel. He added that a carbon tax could be a solution to achieving a global push toward sustainability objectives.
But overall, he said investors and everyone in the coming decade will "have to be much more critical about what we regard as sustainable. We are going to have to slice off a big chunk of the economy" because we can't afford it anymore.
Speakers on a separate panel identified several other risks, in addition to climate, that plan sponsors contend with and communicate to participants.
Mary Delahunty, general manager for social responsibility and head of impact at the A$46 billion ($31.6 billion) HESTA Super, Parramatta, Australia, said during the panel discussion that the plan is spending more time trying to understand what typical participants need.
"We really need to amp up financial literacy," she said. "We (also) think there is a lot to be said about behavioral economics" in a system that is compulsory.
But Gareth Gibbons, vice president, pension legal at Ontario Municipal Employees' Retirement System, Toronto, noted the C$95 billion ($72.6 billion) fund, being a broader defined benefit plan serving the province's municipal employees, doesn't have a typical plan participant, so addressing their needs is more challenging.
Panelists also agreed that aside from climate change, longevity risk is prompting plan sponsors to engage with plan participants. Ms. Delahunty said HESTA plans on finding an annuity provider so the plan can offer retirement income options to participants.
Speaking about the issue of sustainability in the retirement system, Mr. Gibbons said a defined benefit plan sponsor can look at what alternatives to defined benefit plans exist right now and consider what changes are permitted within plan policies.
"The challenge is to find a way to make the entire system work together — the policy and the plan sponsors' member engagement efforts," he said.
Bringing the conversation back to climate, Christian Lemaire, global head of retirement solutions at Amundi, said: "We are facing a new huge risk, which is the impact of the climate change."