WorldPensionSummit puts the spotlight on sustainable outcomes

Pensions & Investments hosted its 14th edition of the WorldPensionSummit in The Hague, Oct. 10-12. The conference — which centered on the theme of Regenerating Sustainable Outcomes — welcomed delegates from across 41 countries who enjoyed a variety of panel discussions and also heard from 11 keynote speakers. Editorial staff were on the ground to report on the key news over the three days.

When it comes to ESG, panelists at the WorldPensionSummit could agree on one thing: Definitions are not universally understood or agreed upon. And one discussion, titled "Polarizing Investments — Overcoming Roadblocks in Achieving Net-Zero Goals," shed some light on that murkiness.

"I don't think I've really understood how people interpreted (ESG) in different ways," or how "triggering" it could be for some U.S. residents, said Paul Todd, director of investment development and delivery at the National Employment Savings Trust in the U.K.

In the U.S., ESG backlash has even led BlackRock CEO Larry Fink to stop using what he said had become a "weaponized" term.

Among the definitional challenges, Charles Van Vleet, assistant treasurer and chief investment officer of pension investments at Textron, remarked that the U.S. manufacturer already complies with some 9,000 existing regulations and laws that govern its corporate behavior, from environmental guardrails issued by the Environmental Protection Agency, social guardrails on worker safety, child labor, minimum wage, and governance practices to curb risks, such as the duality of CEO and chair of the board.

A lot of the ESG debate, he said, seems like "old wine in new bottles."

Still, the discussion was helpful, he noted. "Maybe it's just thinking about this as expanding the toolkit of information."

Much of the opposition in some states, noted Curtis Loftis, state treasurer of South Carolina, stems from the S and G aspects, with the government expected to set and enforce regulations on the environment. "People don't want to be told how to act."

Added Ingrid Albinsson, vice chair of the board at Swedish pension fund AP2: "We have different definitions … different languages… We also come from different situations," which is why investors need to get to an understanding of what it takes to meeting challenges, such as climate and the energy transition.

While Connel Fullenkamp, professor of the practice of economics at Duke University, is optimistic on the potential for natural capital to become an investable asset class, "this is a process, and the process is going to take some time."

Fullenkamp warned of the risk of "rushing into this space" and talked about challenges to the burgeoning asset class.

Fullenkamp thinks the starting point in terms of turning natural capital into an investment opportunity is carbon sequestration, giving a base value from which we can build.

He and his team are thinking of carbon as "the thin end of the wedge" to get into natural capital as an investable asset.

Delegates also heard from institutional investment executives on their own biodiversity and natural capital-related journeys, with case studies from APG Asset Management, the Environment Agency Pension Fund and others.

Delegates at the pre-summit heard that collaboration and collective standard-setting is a powerful tool in advancing biodiversity-related investment by pension funds.

Gabrielle Krapels, head of fiduciary management responsible investment and mandate research at APG Asset Management, said while executives at APG "have a lot of good ideas ourselves," the case is stronger if there is agreement and alignment among industry participants on standards, for example.

APG executives are currently assessing with clients which asset classes may be the best fit for impact investment, she added. APG Asset Management runs about €541 billion ($572.5 billion) in assets under management, including on behalf of Stichting Pensioenfonds ABP, Heerlen, Netherlands.

Orlando Figes, author of the "Story of Russia" and former professor of history at Birkbeck College, University of London, started the second day of the WorldPensionSummit on a somber note with comments on the Israel-Hamas conflict.

"The terrorist attack on Israel and the war likely to ensue has (delivered) a gift for Putin, unfortunately, because it directly diverts attention and more importantly military aid from Ukraine and symbolizes an attack on American policy in the Middle East, which is part of Putin's broader efforts to end what he calls the unipolar world, American domination," he said in an keynote speech.

"It also directly broadens Putin's war against the West and that's what they did. It might have started as an invasion of Ukraine land grab ... (but it had broadened into) a war of an alliance of Russia and Iran and China against the West," he said.

George Magnus, economist and research associate at the China Centre of Oxford University, then discussed China.

Now is the wrong time to start building up an exposure to China despite low allocations and encouragement for years to add that risk to portfolios, he said.

"The problem is, now is the wrong time, I would say, to start building out your China exposure, unless you're trading China — in other words, you're in and out very quickly; or you are very trustful of the people that are advising you about how to do this. (China) is not really a market for amateurs, or for people that are less-than-fully cognizant of the economic, governance and government risks" in a business environment, Magnus said.

But there is a "red carpet out for foreign capital" into China.

So, "is China investable? The answer is, of course it is," Magnus said. The question is, do investors want to take the risk of doing so.

Speaking on the session titled "Rethinking Investment Portfolios," Simon Pilcher, CEO at Universities Superannuation Scheme Investment Management, highlighted that over the past three or four years, things have been happening "that were considered to be highly unlikely or completely unforeseen."

As he looks forward, the responsibility that USSIM — the in-house manager for the £73.7 billion ($96.5 billion) Universities Superannuation Scheme, London — has, is and continues to be paying pension benefits. The fund has a defined benefit commitment to participants — "we have to pay it, come what may," he said. And so, pension fund managers "try to build pension funds that are resilient in the context of an unknowable future."

Looking forward, there are all sorts of events that could happen and pathways to take, but "the climate one is one of the ones that is most scary as we look forward," Pilcher said.

While pension funds have some ability to influence the outcome, that is limited. "My conviction is we need to spend more time thinking about how to influence the outcomes" — which involves not only working with companies in the portfolio, but also "working far harder with the governments and regulators which set the landscape in which we're all operating," Pilcher said.

The pension fund board of the future will be affected by regulations, the need for diversity requirements, artificial intelligence and variable compensation.

Angela Miller-May, CIO of the $51.8 billion Illinois Municipal Retirement Fund, Oak Brook, noted that AI will be a part of the tool set needed by boards to gather information and make decisions.

She also expects to see more diversity, more women and more people of color to keep boards relevant. "Their concern will be more sustainability, more cybersecurity (and) political risk. I think they'll evolve with the evolution of the risks that they face, and that will be reflective of the time that they live in," Miller-May said.

Ignacio Calle, CEO of Colombia-based SURA Asset Management, which has $170 billion in assets under management, said boards will be looking for a more balanced mix of hard and soft skills.

"Hard skills can (include) technology, cybersecurity. New asset classes are coming especially to Latin America, (and) we need to understand very well how to apply them," Calle said.

Soft skills include sociology and psychology, as boards seek leaders who are able to communicate effectively with people in the community, he said.

Getting younger workers to engage on planning for their retire-ment demands a hook to pique their interest, said Nikki Trip, founder of JIIP, a network for pension professionals under 35 in the Netherlands.

Stay humble, Trip told attendees at a panel on financial influencers.

"Pensions are not sexy," she said. "They will never be sexy."

When she talks to peers, she said, she'll tell them that one day a week, they're working for their pension. That gets their interest, she notes.

Another strategy: promoting a meeting on salary matters, but bringing in a pension expert in the last five minutes.

While a hook is key, Trip said it's equally important to communicate the value of savings — the value they're creating now as well as the value they'll receive many years down the road.

Delegates attending a competitive debate at the summit voted to retire the concept of "retirement."

The idea of retiring retirement, presented by Celine Chiovitti, executive vice president, head of pensions at the C$127.4 billion ($93.2 billion) Ontario Municipal Employees Retirement System, Toronto, received 55% of the audience vote. Chiovitti said the conversation around what "retirement" means in today's world needs to change, amid an increasingly aging demographic across the globe and the role that retirement plans play as social infrastructure in providing seniors with the ability to age where they want to.

She had strong competition from two other proposals. Mark Fawcett, CEO at Nest Invest, called for fair fees to be paid to asset managers. He asked delegates to think about the charges asset owners pay and whether they offer value for money for millions of defined contribution participations. Fawcett received 35% of the votes.

The third presentation came from Mirko Cardinale, head of investment strategy and advice at Universities Superannuation Scheme Investment Management, and Mark Cliffe, visiting fellow and visiting professor, Global Systems Institute, University of Exeter. They presented on what change will come from a new approach to addressing climate risk in the USS portfolio by using "decision-useful" climate scenarios. The concept was jointly developed with academics at the University of Exeter.

Panelists discussed the pros and cons of emerging markets, and thoughts on how they will affect larger industries.

Laura Hillis, director, climate and environment (responsible investment) at the Church of England Pensions Board, discussed her report on the barriers facing Australian superannuation funds when it comes to investing in emerging markets — specifically in climate solutions and transition finance.

Hillis concluded: "In terms of the expertise piece, what I found is that the pension funds and the super funds that have done this the best and have really started to get a track record of investing in emerging markets" are those that are large enough to have in-house teams and capability. Those funds tend to focus on specific asset classes or jurisdictions where they can build up capacity and a team.

Delegates also heard about the challenges associated with investing in emerging markets infrastructure projects.

Among the difficulties is ensuring everyone is on the same page as all parties may not "speak investment," said Rich Nuzum, executive director, investments and global chief investment strategist at Mercer.

Also on the panel, Sonja Saunderson, CIO, Eskom Pension & Provident Funds, Johannesburg, spoke about the fact that South Africa and other emerging markets have not contributed to the climate crisis as much as other markets, and yet are still held to the same high standards. "I think it's a billion-dollar question," Saunderson said.

Global fragmentation, social changes and climate risk are top of mind for sovereign investors Mubadala Investment Company, Abu Dhabi, said Antonio Miguel Ribeiro, director of enterprise risk management during the 'Rebalancing Lessons from Sovereign Wealth Funds' panel discussion.

Shifts in global power and geopolitical uncertainties are among the megatrends that the fund has spotted. The fund also has its eye on large structural changes in terms of demographic and societal change.

"Demographics has been obviously top of mind for pensions, but less for other types of investors. It is top of mind for us ... as a long-term investor. And we think about it from the perspective of the future and the resilience and the outlook for the companies we invest in around the world in different geographies," he said.

Societal change includes people's values; for instance, how people assign value to the things they buy, and how technology such as artificial intelligence will have an impact on that. "And then climate risk and ESG which are central topics which are driving the energy transition which is an urgent requirement and an area for us to focus on," he said.