I’ve been watching s “Pension with a Purpose” networking group develop. You can read about it here. The supply chain leads from asset managers to large pension funds but doesn’t quite reach the member – this is a member’s club with a difference, so I’m not talking about this initiative in this blog.
But I do think the phrase “pensions for purpose” is a good one. It’s certainly stopping me writing the word “impact” in the first five lines of this blog, though I am thinking about impact , what it costs and how it’s measured – a lot.
Last weekend I wrote a couple of blogs which got a mixed reception, by which I really mean they made some of my readers angry enough to mail me and tell me I’d got it wrong. I’d been arguing that people find it hard to get their head around “impact” when they don’t know what they’re losing and what they’re gaining from claims from their workplace pension to be making an impact in environmental, social and governance matters.
Take this example of a tweet from People’s Pension.
Working with @StateStreetGA we’ve removed around 150 stocks, worth £226m, from our investment portfolio as they failed to meet our rigorous environmental, social and governance (ESG) standards. Read more In @PensionsAge #ESG #responsibleinvestmenthttps://t.co/58hNzsmktn pic.twitter.com/R9MNCDHiXZ
— The People’s Pension (@PeoplesPension) October 14, 2021
the tweet is clearly aimed at an audience of pension experts, I don’t see Pension Age sitting on my barber’s magazine rack. And reading the Pension Age article , I am none the wiser about what the impact of this divestment will be. Presumably somebody now owns the £226m of shares State Street sold and rather than People’s influencing State Street’s voting of those shares, someone else is. This is ethical investing in my book, investing according to a set of rules designed by John Cunliffe and his team but with no involvement from the members of People’s Pension.
Tales of investment not disinvestment.
A few weeks ago, a group of Cushon’s staff went to the Scottish borders to see land which was being planted with trees from funds of Cushon members. The investment is being managed by Gresham House. There are plans for members to see the habitat and the biodiversity it brings. Cushon are talking of webcams which can be watched from the member’s site. Forestry is one of the new areas of investing in the Cushon default investment strategy, there are many others. This is not the place for me to be bigging up Cushon as a workplace pension but I do know that they are thinking about their members as they invest.
Another example is the fossil free fund from Pension Bee which was created because members objected to LGIM’s Future World fund investment into fossil fuels. The fossil fuel fund is also run by LGIM but with a clear purpose which is stated on the packet. Maybe this is disinvestment, but it is a positive investment too because it’s purpose is aligned to member’s requests
These tales (narratives as marketeers call them) are stories we can relate to and they are part of the solution to the question – “how do I measure impact”. They contrast with the approach which People’s Pension is advertising which leaves me with a sickly feeling that those £226m shares are in rather worse hands than they were before.
A further tale of purpose
I was swimming in a pool somewhere near a field in Hampshire and I floated into a chap called John who turned out to be a Doctor (sadly not from New Orleans but happily from Cambridge. ) I asked him what a nice doctor from Cambridge was doing hanging out with a bunch of Private Market COOs and he told me that he’d left medicine because he could make more impact in the financing of healthcare. He explained that he evaluated innovative approaches to healthcare and financed their distribution. I asked for more and the picture above is what I got (and all I got).
If I wanted to know what his firm was about , I couldn’t have had it explained more clearly and concisely. If Nest or LGIM (who manage my workplace pensions) were to invest with this purpose, I’d be happy. Being clear about what the purpose of what you do helps people to value the impact of their investments.
The measure of impact
I am nervous of getting another earful from my readers so I am going to be less ambitious this time around. It strikes me that there are a number of reporting requirements placed on companies and on the owners of their equity. Many of these are voluntary, some are statutory and some matter more than others. I’m not going to list out all the acronyms but they start with TCFD.
One simple measure of impact, is to see if this reporting is being done properly. This is the approach adopted by my friend David Crum, who is teaching me about all this (along with others). Strictly speaking we are using reporting as a Governance proxy and a measure of how serious a company is about making an impact.
My original suggestion was that we could chart the progress of the reports to see how the dial , on say a company’s carbon footprint, was moving. But maybe that’s too ambitious. Maybe we should just be looking at how organizations report, which is a matter of checking data and not try to make hasty judgments on short-term results.
In my little sector of interest (because I am not an investor elsewhere) I would like to know that Nest and LGIM are properly gathering information on the investments they are making on my behalf and taking action where that reporting is incomplete, or downright fibbing.
This seems in line with what the Government are making new law about, It creates a base for better things to come.
The cost of impact
There is , as well as the measure of the social , environmental and governance of an investment , financial measures which are of critical importance. I need to know how my pension pot is growing and that is in part down to the income my investments are delivering to my pot and in part down to the value I can sell my investments. We have got used to knowing we can sell at a quoted price when we want to (daily liquidity) and we expect to get fair value.
Part of the cost of investing in impactful investments is that they aren’t going to be valued daily and some may not even have buyers when we want to sale. We are gong to have to be patient about realizing the value of this capital, indeed we have to accept that some of our investments will never find a buyer and will fail. This is a cost of trying to make an impact,
This is why we need , in order to do things like invest in forestry or healthcare innovation or any of the other new ideas that need funding, to be a part of something big. We need to be in big investment pools called Long Term Asset Funds and we need to be in workplace pensions valued in billions not millions. Above all , we need to be able to trust the people who are investing our money.
Trust is built by an open approach to what you intend to do and about good reporting on how you do it. We members are worms, we are not golden eagles soaring above Scottish forests or medical scientists preventing the next pandemic, but we swim in the same pools!