Responsible Investment

Sacrificing pension income to SRI concerns

June 19, 2012 | 2 min read

There is still little research on the topic of investors’ social values and how that impacts their investment choices. That may be because pension funds aren’t yet up to handling values-based investments; and because the largest number of investors don’t possess the financial literacy to know how to express those values in their investment choices.

“Motivated by risk adjusted returns and coupled with evidence of financial illiteracy on a large scale, pension funds currently do not provide differentiated funds to meet the values based investment style which investors desire,” says the authors.“It is important to investigate if, and to what extent, individuals value social responsibility in their pension investments, because beneficiaries do not have full information on and control over their pensions,” they continue.

Because of this lack of beneficiary (i.e. consumer) control, and because of the significant market power represented by pension funds — in the Netherlands alone, pension funds have a balance ofaround 700 billion euro — it is important for pension funds to know their investors’ preferences and to make investment choices in accordance with these preferences. “Increasing awareness of the consequences of beneficiaries’ financial behavior can lead to more ethical investing. E.g. after great pressure of the Dutch pension participants, most Dutch pension funds now exclude firms that engage in direct production of cluster bombs from their investment portfolios.”

Financial sophistication means investmentsconsistent with values

The authors used data derived from 1766 people who are a“representative sample of Dutch society”.The questionnaire asked respondents toself-assess their risk tolerance regarding their decisions about pensions, as well as their own level of financial sophistication; and it asked them about specific SRI investment ‘screens’ that exclude companies with low social responsibility in such areas as human rights issues, weapons, alcohol, tobacco, and other ‘sin’ industries.

“As expected…on average people who enjoyed a higher level of education are less likely to make contradictory financial choices,” say the authors.But overall,“beneficiaries are not capable of incorporating their values into their financial decisions…these findings have important consequences, if the fiduciaries want to take values into account they have to be very careful in designing a solution to both the problems of heterogenous preferences and low financial abilities.”

The bottom line: willing to pay for social responsible pensions?

Respondents to the questionnaire also had to indicate whether or not they would accept a monthly pension entitlement lower than the one they currently receive (or expect to receive) to align their social values — and their social ‘screens’ — with their investments.

“Regarding willingness to pay, we found that higher educated and participants from a higher income household and females show a higher willingness to exchange pension income for investments that better match their norms and values,” they say.


This article may be reproduced according to our terms of use with attribution (and link, if online) to To be cited as: “Sacrificing pension income to SRI concerns”, Arian Borgers, Rachel Pownall,, June 19, 2012.

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Rachel Pownall
Adjunct Associate Professor of Finance, Tilburg University

Arian Borgers
PhD candidate, Tilburg Sustainability Center

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