Pension Fund Coalition for Inclusive Capitalism Releases Resource to Focus Investments on Long-term Value Creation

The Pension Fund Coalition for Inclusive Capitalism, an initiative of the Coalition for Inclusive Capitalism and the Ira M. Millstein Center for Global Markets and Corporate Ownership at Columbia Law School, today released an open resource to help pension funds structure contract language establishing minimum environmental, social and governance (ESG) impact guidelines in investment agreements with asset managers.

The Pension Fund Coalition for Inclusive Capitalism has developed model ESG impact contract language for use in asset owner agreements signed with asset managers, encompassing a range of approaches to pension fund investments in public and private equity markets.  The resource is intended to protect against superficial implementation of impact-oriented standards and afford asset owners the ability to better direct and monitor their asset managers to ensure they invest in line with their priorities.

“For capitalism to be inclusive and sustainable, capital must be invested to both provide shareholder returns and prove its positive impact on people and planet,” said Lynn Forester de Rothschild, Founder and Chair of the Coalition for Inclusive Capitalism and Founding and Managing Partner at Inclusive Capital Partners. “The most powerful lever of investment change lies with asset owners who demand that managers demonstrate both stock price returns and concrete proof of overall impact.”

The Pension Fund Coalition for Inclusive Capitalism, co-chaired by Theresa Whitmarsh and Hiro Mizuno, collaborated with public pension fund managers and legal advisors to provide pension funds and other asset owners a guide for structuring ESG impact provisions in investment agreements.  The tools include model mandates, reporting requirements and sample ESG impact criteria, which pension funds can use as a baseline for negotiating ESG impact provisions in the context of asset manager relationships.

“Most public pension funds, have little control over how – or whether – their assets are invested with ESG impact guidelines. The model language addresses this gap by ensuring long-term value creation standards are upheld,” said Hiro Mizuno, United Nations Special Envoy on Innovative Finance and Sustainable Investments and former Chief Investment Officer of the Japan Government Pension Investment Fund, the world’s largest pension fund.

The model language is designed for ease of use and can be tailored to asset owners’ ESG and long-term investment priorities. Flexible across a range of scenarios, approaches and public or private markets, it offers portfolio and legal teams pragmatic ESG tools for:

  • Model mandates
  • Voting rights
  • Reporting requirements
  • Sample ESG factors and criteria

The resource also includes guidance for fund managers and legal teams on other key considerations in determining ESG objectives within their broader investment agreements.

“As asset owners, those who oversee pension plans are distinctly focused on the long term.  In the interests of beneficiaries and future retirees, pension fund fiduciaries are looking for better ways to address the integration of social and environmental factors as part of successful sustainability,” said Theresa Whitmarsh, Co-Chair of the Millstein Center, Chair of FCLTGlobal, and former Executive Director of the Washington State Investment Board. “With these tools, pension funds will have more ways to ensure that their capital is being deployed by asset managers in strategies that fit with a preferred approach to sustainability and ESG integration.”

Pension fund managers familiar with the work added the following:

“It’s important that large asset owners, including pension funds, treasurers, and endowments, know how to structure an optimal relationship with their investment managers,” said Illinois State Treasurer Michael Frerichs. “Asset owners have a vested interest ensuring that their managers are using best-in-class practices that add value and serve their needs. This includes the integration of ESG factors into investment decisions, the adoption of strong proxy voting practices, and the provision of robust reporting on investment management and stewardship activities. The model language published today will help investors structure strong relationships with their managers and it will help create uniform standards across the market.”

“Pension investors and asset managers must create long-term value for clients and beneficiaries by considering social and environmental outcomes,” said Gordon J. Fyfe, Chief Executive Officer and Chief Investment Officer at British Columbia Investment Management Corporation (BCI). “Standard tools like model mandates can support the approach portfolio managers take to consistently apply ESG principles.”

“At PSP Investments we support a shift to more inclusive capitalism in order to engage and create value for all stakeholders,” said Neil Cunningham, President and CEO of PSP Investments. “We believe that companies who embrace inclusive and stakeholder capitalism will outperform in the long term. Accessible and customized standard tools are a welcome addition to support institutional investors to address ESG principles and considerations.”

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