Asian pensions can leapfrog with sustainability

A new report by the Association for Sustainable & Responsible Investment in Asia (AsRIA) urges pension funds to adopt aspects of sustainability into their investments, in order to achieve better performance over the longer term.

This does not equate to wearing Birkenstocks, hugging trees and petting bunny rabbits, although you may do so if you wish. Actually, AsRIA sounds like a very conventional investment consultant.

The report, which was written by Alexandra Tracy, a former investment banker and now a strategist at First Eastern Investment Group, has five main findings for the region's pension funds.

First, it notes that on a worldwide basis, as pension funds diversify into new asset classes, they are including aspects of ESG (environment, sustainability and governance) into their analysis. As a result, particularly in Europe, a sense of best practice on ESG is emerging. This makes it easy for others to follow.

Second, AsRIA notes that, because this is still a movement in the making, Asia's funds have an opportunity to leapfrog peers in the West. The bad news is that hardly any Asian investors have included ESG analysis in their investment strategies, although Thailand's Government Pension Fund and Korea's National Pension Service are two admirable exceptions.

The reason why this is important is because, by incorporating ESG criteria in their RFPs, big funds force their external fund managers and other service providers to prove their sustainability bona fides. The amount of work required by the pension fund to promote sustainable practices ends up being rather less than the amount of work adopted by the finance industry.

Third, AsRIA equates sustainability with longer time horizons. When pension funds adopt a long-term perspective, as befits their long-term obligations, there emerges a clear alignment with sustainability issues. Many investment consultants continue to argue in favour of longer-term investing (and by and large most pension funds continue to ignore them -- to their detriment?).

Fourth: proxy voting. Voting shares is a key part of pension funds' fiduciary duty. It leads to responsible investing over the long haul, and is not only good advice, but lends one to thinking in ways more compatible with sustainability issues.

Finally, pension funds can and should play a more active role in getting Asian corporations (in whose stock they invest) to open up more about their own ESG policies, among other things.

So if you are responsible for a pension fund and you blanch every time one of those Greenpeace naifs accosts you on the street, asking for money or a signature or your support for the whales, you would normally scoff at being asked to incorporate ESG issues into your investments.

But AsRIA makes a different case. By thinking more about the long term -- which is in line with a pension fund's objectives -- you start to think about the importance of sustainability: in your investments, in the companies in your portfolio, in the world in which we live. It's good advice for hard-nosed moneymen such as you.

And it's OK to pet the bunny.