Ladies and Gentlemen, I am delighted to have been asked by the National Association of Pension Funds to say a few words about your role in the creation of a sustainable financial system and I need hardly say how sorry I am that I cannot be with you in person.
Now I don’t think you need me to tell you that we live in increasingly uncertain times. We are facing what could be described as a “perfect storm” the combination of pollution and over-consumption of finite natural resources; the very real and accumulating risk of catastrophic climate change; unprecedented levels of financial indebtedness, and a population of seven billion that is rising fast. The world is not even feeding its current population, let alone the nine or ten billion now expected by 2050!
So what does this gathering storm mean for all of you? I would argue that as the largest class of institutional investor and as a sector that is defined by your long-term liabilities, you have a need, and arguably a duty, to ensure that these emerging environmental, social and economic risks are identified and managed. 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?
There is also mounting evidence, from the likes of Harvard and London Business Schools, that those companies that improve the way they tackle environmental and social challenges prove to be the ones better able to deliver long-term returns. So you can have your cake and eat it!
Recently, I convened an event for pension funds along with four of my Charitable initiatives to look at the issue of resilient investing for the long-term and I was struck by a number of the comments I heard. For example, Paul Woolley, a former investor who now runs a centre on capital markets at the L.S.E., noted that, for a fund manager, “trying to do the best each year is a recipe for doing badly in the long term”; and David Blood, who set up Generation Investment Management with Al Gore, shared his investment record, which demonstrates clearly that the integration of sustainability leads to long-term value creation.
I know that old habits die hard and that it is difficult to make the first move, but is there not a case for ensuring your portfolios are resilient in the long-term? Could you do so by incorporating sustainability into your mainstream strategy, rather than having it sit in a subordinate silo? Moreover, by contributing to the long term sustainability of Nature’s economy (in other words the maintenance of vital ecosystem services, on which the durability of our own economy ultimately depends), pension funds can help to preserve the real value of beneficiaries’ retirement income.
Ladies and Gentlemen, your sector plays a very significant role indeed in how our economic system works, both now and in the future. So it really does fall to you, I am afraid, to help shape a system designed for the twenty-first and not the nineteenth century. Which is why I can only urge you to deploy your considerable human ingenuity to make that innovative and imaginative leap that the world so badly needs otherwise your grandchildren and mine, for that matter will be consigned to an exceptionally miserable future.
Now I am sure that the distinguished people waiting to speak will have some ideas as to how get the ball rolling...