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NEWSLETTER | 20 Nov 2020  
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"Risk-return, plus a bit of ESG" no longer passes muster for pension funds


Markets are riding high on vaccine optimism, after encouraging trial results for coronavirus vaccine candidates from Moderna and Pfizer.

The World Health Organisation is warning that vaccines are “not a silver bullet”, while Brexit negotiations have come to a halt once again after a member of the EU team tested positive – a reminder of the pandemic’s ongoing effects.

Nothing is beaming more brightly than the market for renewable energy. Green energy investment funds tracked almost EUR2 billion of inflows in the third quarter, encouraged by new climate-friendly legislation worldwide, such as the UK’s newly-announced ban on the sale of new petrol and diesel vehicles from 2030 as part of prime minister Boris Johnson’s ‘green industrial revolution’ unveiled this week.

But in order to meet the UK’s climate targets, infrastructure spending will need to double to GBP40 billion a year. Pension funds are being urged to fill the gap, with speakers at a pensions conference this week saying that the current “minuscule” institutional infrastructure allocations need to grow for the sake of the long-term sustainability of the economy.

A vast amount of capital could be unleashed in the process, as research shows the world’s 100 largest asset owners continued to grow by 6 per cent in the last year, reaching over USD20 trillion.

Impact is also a matter of location, according to emerging markets investors Arisaig Partners. Arisaig is targeting the maximum “impact bang for your buck”  with its new Next Generation emerging markets equity fund, which is now looking to invest in companies that offer climate change and societal improvement solutions in countries where the money “goes the furthest”.

Institutional investors are already making headway on some ESG themes, such as diversity, with two thirds saying they actively exclude companies from their portfolios if they fail to meet their standards.

More worrying is the asset management industry’s own record for diversity – where the gender pay gap is the second widest out of all sectors, and the number of Black investment bankers working in the City of London remains in single digits.

Madeleine Taylor
Editor, Institutional Asset Manager

 



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