Earlier this month 80 board members and executives representing 40 pension funds from 12 countries gathered at the University of Toronto’s Rotman School of Management.
The purpose of the day and a half workshop was to examine and discuss five action steps investment institutions could take for the good of their own beneficiaries that would, at the same time, foster a more “sustainable form of capitalism.”
The participants discussed the following five action plans for consideration within their own pension organizations:
1. Stranded Asset Risks Recommendation: Undertake an in-house project aimed to raise the understanding of the stranded asset risks issue at both the Board and management levels;
2. Integrated Reporting Recommendation: Commence and advocate the adoption of “IR” both for reporting the organization’s results and for assessing the long-horizon prospects of its investments;
3. Quarterly Earnings Guidance Recommendation: Focus discussions on yearly results in one-on-one meetings between investors and corporate managements;
4. Compensation Structure Recommendation: Think carefully about how best to exercise shareholder rights in order to foster effective compensation practices; and
5. Investor Behavior Recommendation: Design and implement concentrated long-horizon investment mandates, and ensure that pension organizations have the necessary resources to successfully implement them.
Keith Ambachtsheer, Rotman International Centre for Pension Management Director and Adjunct Professor at the Rotman School, says there are often two types of investors – real investors and Environmental, Social and Governance (ESG). “The whole message, and I think people started to get it if they hadn’t gotten it before, is that it’s a completely phony creation of a couple of silos that need to be integrated. I’d like to think by the end of the day and a half, we had more and more people realize it’s about long-horizon investing.”
He explains that once a long-horizon approach is adopted, investment managers will have no choice but to look at other issues like the environment and the treatment of one’s labor force, for example. “It’s only language and we have to recognize there is sensible and non-sensible investing.”
And while many pension funds already understand this idea, there was, and is, a need to remove the “artificial separation” between regular investors and ESG investors, Ambachtsheer stresses. “At the end of the day, you can’t make that separation.”
As for the five action steps, Ambachtsheer says although they are in very different areas, they must be looked at in an integrated way. He cites the elimination of quarterly reporting as another example of how long-horizon investing should be considered.
“One of the most helpful elements during the workshop was the healthy dose of skepticism about the value and feasibility of some of the proposed actions,” adds Ambachtsheer.
“While all of the attendees may have not agreed on all aspects of the actions, the workshop did raise the collective understanding of what each of the five action steps were really about and how they might be best addressed.”
Joel Kranc is Director of Kranc Communications, focusing on business communications, content delivery and marketing strategies. He has written and worked in the retirement and institutional investment space for 17 years covering North American markets, large institutional pensions and the adviser community.
