Pension funds align with members' values through ESG investments

Sustainable investing options grow as pension funds adopt diverse ESG strategies and active engagement

Pension funds align with members' values through ESG investments

This article was produced in partnership with iA Financial Group.

Whether it’s addressing climate change, promoting fair labour practice, or supporting good governance, members want their pension funds to reflect their personal values and contribute to a better future — and pension investments are evolving alongside this trend to support that call for socially responsible options.

“We noticed a lot of members or plan sponsors are more aware of the impact their money can have and they don’t just want their investments to grow, they also want them to make a positive difference,” says Thomas Yuk, Senior Investment Strategist with principal responsibilities, Group Benefits and Retirement Solutions, at iA Financial Group.

“This shift is all about aligning financial goals and the desire for a more sustainable and ethical world.”

Leveraging ESG in pension funds

Pension fund managers aren’t just looking at financial returns anymore. They’re increasingly incorporating Environmental, Social, and Governance (ESG) factors into their financial analysis and decision-making processes. This approach helps identify top-performing companies in terms of sustainability and manage risks more effectively. As the world moves away from fossil fuel, for example, a company that’s investing in clean energy technology is likely more resilient in the long term and that’s something to consider when making decisions for a fund.

There are also a variety of responsible investment strategies being adopted including ESG integration, negative and positive screening, thematic investing, and impact investing. Diverse ESG approaches allow pension plans to cater to different member values and preferences, Yuk says, which is also a growing trend among investors as a whole.

“It’s not a one-size-fits-all when it comes to responsible or sustainable investing,” he adds. “Different pension plans are adopting various approaches to take into account members’ specific concerns or goals. There’s an appetite to seek investment options that align with and reflect personal values on sustainability overall. This demand is driving fund managers to offer more responsible investment products and strategies.”

Yuk is also seeing an increase in active engagement and ownership, noting that “fund managers aren’t passive investors anymore — they have a seat at the table but also a voice in how things are done.” This includes anything that pushes the companies they invest in to enhance their ESG practices, such as  dialogue with company management on ESG issues and using proxy voting to influence corporate behaviour towards more sustainable practices.

Many fund managers are signatories to major sustainability initiatives like the United Nations Principles for Responsible Investment (PRI), Climate Action 100+, and the Net Zero Asset Managers initiative. These commitments demonstrate their dedication to supporting global sustainability goals and improving ESG standards, showing that they’re not just talking the talk, but also walking the walk.

Comprehensive evaluation ensures nothing is a façade: the monitoring team rigorously evaluates the ESG practices of fund managers through a detailed assessment process. This includes examining aspects like corporate culture, ESG resources, integration in the investment process, shareholder engagement, and continuous improvement.

“We conduct this evaluation to uphold and exceed our high standards” Yuk says.

Group benefits, retirement solutions at iA Financial align with and embrace ESG evolution

Yuk’s team oversees assets, advising plan sponsors on defined benefit and defined contribution pension plan investment options. When plan sponsors or consultants have questions about ESG, the iA team addresses those as well. In light of the increased interest and importance of ESG, iA is developing a new ESG scorecard to help evaluate different asset managers and assess how they measure on ESG.

“These scorecards would look at the factors we talked about above,” Yuk says, but notes iA Financial Group already has a robust due diligence process.

“We look at our fund managers on our GSR platform to ensure they’re following the ESG principles and integrate those results into our research and monitoring process,” he adds. “Focusing on sustainability and good governance meets the high expectations of investors, customers, and employees — which can help a company's long-term success. For our part, we’re committed to advancing ESG in the space.”


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