Why are pension funds getting sustainable investing so wrong?
UK pension funds are estimated to invest over £88 billion into the fossil fuel industry. And while they have to take a long, hard look at their role in whether we meet — or miss — net-zero targets — we need to ask why they get sustainability so wrong. A recent report by the Swiss government found that high costs are a major barrier to pension funds investing in sustainable ways. This is because asset management incumbents have long used sustainability or ESG labels to justify charging more for products that are essentially the same as their non-sustainable counterparts.
These labels, plus the idea that this form of investing is “complex,” have resulted in premiums paid to access these funds. Why? Some investors, like pension funds, must reconsider whether the additional fees are worth it and if they tie in with their fiduciary duties to their pension members. However, it doesn’t need to be this way. Credible products with in-depth impact research can be built and priced competitively, removing this barrier to transitioning pension fund assets and dispelling the perception that sustainable products are expensive marketing ploys.