By Rufo Quintavalle, impact investor and founding partner of Eucalis Comercial de Madeiras, a sustainable forestry firm headquartered in Sao Paulo, Brazil | 3 November 2014
We are running out of time on climate change and money needs to start flowing fast towards a solution, and in large amounts if there is to be any hope of avoiding the worst. By far the largest amount of money in financial markets, approximately $30 trillion, is controlled by the pension funds. If the energy of the student-led divestment movement could be redirected towards the pension funds there is the potential to turn things around.
However, before this can happen there are three barriers to be overcome:
- Pensions are dull
- Pensions are opaque
- It is reassuring to surrender control
A student-led protest is an exciting, exhilarating thing. A pension fund, by contrast? Does anyone who has just come through college and is starting a career really want to be thinking about their retirement?
Compounding the inherent unsexiness of pension funds is their opacity. Very few people I know, including those who work in the financial sector, know who is responsible for managing their retirement fund. This is hardly surprising – you start paying into it at an age when you know little about how these things work, you often have no choice as to which pension plan you pay into, and your money is pooled with thousands of other contributors and then passed along to a myriad of financial intermediaries.
And to make matters even worse, we are so used to being taken care of when it comes to financial matters that we have almost grown to like it. With life’s increasingly hectic pace, it is reassuring to think that there is someone else out there who knows better than we do how to take care of our money.
And yet, if we are serious about trying to combat climate change then we have no choice but to engage with the pension funds. As already mentioned the amounts of money they control is staggering. And this isn’t money that is owned by some shady hedge fund manager or oil-rich sovereign wealth fund but rather, collectively, by the man and woman in the street. This is our money, in the same way that this is our planet. So how to get over these three barriers?
While pension funds may be somewhat lacking in the glamour department the issue of climate change clearly isn’t. It has got high profile Hollywood supporters behind it and one of the things that became clear to me on the recent climate march was how proud and happy people were to be there. So it could just be a question of branding: go easy on the word “pension” and hit hard on the figures and the issues. Putting pressure on the pension funds is possibly the single best way to mobilize large amounts of capital in the time frame needed to combat climate change.
While it can be hard to know who is managing your money, fortunately there are groups that have done some of the work for us. The Green Light Campaign in the UK is one of them. Via their website you can identify who your pension provider is and send them a message expressing your support for a low-carbon investment policy, asking them how much they are currently allocating and what their intentions are for the next five years. Green Light’s sister group, Share Action, offers shareholder engagement and proxy voting as ways to follow up on this initial contact.
The Vital Few in Australia also maintain a pension database and allow you to send standardized or personalized emails asking your pension fund to disclose their holdings and to commit to a hedging strategy whereby they allocate 5% of their portfolio to low-carbon investments. This might sound unexciting compared to total divestment but 5% of $30 trillion is still $1.5 trillion. If even a fraction of that amount were to be earmarked for green infrastructure it would make it easier for sustainable fund managers to attract the best talent and a virtuous circle would be set in motion.
If we want responsible investing to work it will mean helping busy people understand these opportunities and turning them into responsible investors, not simply putting pressure on asset managers to sign up to ESG principles. The divestment movement has the potential to change not just how professional asset managers behave but also how everyday investors understand finance and that can only be a good thing.