Armchair critic: Prince Charles takes on pensions. And Brendan Llewellyn takes on Prince Charles…
The Prince of Wales has spoken on pensions matters. Personally, I enjoy these interventions. He has created a new role – senior non-executive director for the UK.
It's not a role he can carry forward to his next job so perhaps he will up the ante over the next few years. He suggests, in this case, that the pension industry's investment approach is 'unfit for purpose', and that funds do not do enough to incorporate sustainable approaches.
He goes on: "With an ageing population and pension fund liabilities that are therefore stretching out for many decades, surely the current focus on quarterly capitalism is becoming increasingly unfit for purpose."
What does Prince Charles know about pensions anyway?
The Prince also suggests that the pensions industry has a duty to manage the environmental and economic risks of pollution, depletion of natural resources, climate change, mass indebtedness and population increases. A pretty tall order, sorting out all that – he does ask a lot of his mother's subjects.
A respectful rebuttal...
Some qualifications needed, I think. Quarterly or short-termist capitalism is a broad issue and by no means restricted to pension funds. In fact, pension funds are not particularly guilty of short-termism in their portfolio management.
Their inflows are less performance sensitive so they can afford a more long-term view.
But, in truth there has been little effective attempt to turn capitalism from its focus on maximising returns to some kind of strategic enabler, sweeping up environmental issues in its natural course.
Much talk and widespread good intentions, yes, but few people are prepared to materially change their lifestyle. But there are various shades of green. Perhaps Prince Charles is at the deeper, more committed end – though I suspect his carbon footprint suggests otherwise.
Take my street for instance – almost 100% use of the recycling bins, yet a casual glance at their weekly contents indicates massive consumption levels. And an even more casual glance at the driveways reveals the mandatory presence of vehicles more suited to crossing the Kalahari than the A316.
Pension funds, for their part, have their formal remit from their members and must reflect this remit in their fund management decisions. Still, the green or ethically-directed investment business continues to make good progress.
Latest figures from responsible investment body EIRIS show £12.2bn in green or ethically directed funds, up from £4bn in 2001.
As always, the debate rages as to whether such investment screening or selection criteria inhibit performance. In principle, any selection criterion other than pure investment returns should involve a sacrifice in returns.
But the performance figures don't really support this. This is partly because compliance with global sustainability standards is just part of good risk management. Larger firms have powerful staff lobbies to help ensure that environmental, social or governance (ESG) policies are sound and, of course, many forms of alternative energy, for example, are themselves major growth industries.
What price principles?
EIRIS' latest IPSOS MORI national consumer survey explores attitudes to ethical or green pension options in Great Britain. The poll surveyed 2,015 adults. Overall, 65% felt that it was either essential or very important that a pension scheme invests in companies that act in line with conventions and principles that prevent child labour or forced labour in general.
But who are the 35% who are kind of okay about child labour or just haven't decided yet? Underlying such a view, I hope, is the suspicion than such high-mindedness might cost them a few quid.
The poll also found that nearly a fifth (18%) of adults would like to see 100% of their pension scheme invested in a fund that avoids anything where there may be a negative ESG impact. Only 18%?
Speculating further, I think many believe the world still divides cleanly into ‘.coms' and ‘.orgs' so ESG just sounds, in an impressionistic sort of way, the sort of thing that might dampen your return.
But who are these pension funds, anyway? Yes, the old behemoths are still formidable in size but with the mass shift to defined contribution the pension industry has effectively to be redefined to include new investors in auto-enrolment schemes, my self-invested personal pension, your annuity.
So, any request that the pensions industry invests in sustainability projects, or generally takes a strategic view of its role rather than a purist investment view, must also apply to advisers and their clients with their individual plans for retirement. Where do you stand?
So, thank you, HRH – good intervention. Next week: Fergie on GAR and Wills on wills.
Outlook for income
Chris St John to take over £3bn UK Select Opps