Pension funds’ search for sustainable returns
March 20, 2013
What motivated you
to write a book on the search for sustainable returns?
It was a
combination of an advanced interest in the subject, policymaking that has led
to limited progress in this area in recent years and the conviction that
sustainable investing will be a sine qua non within a decade. What struck me
most was the interviewees’ desire to continue to develop sustainability
policies and practices.
After completing the interviews, how do you view the current state of
sustainability investing in the Netherlands?
Dutch pension funds are ahead of the average pension fund around the world.
The main issue that many pension funds currently face is low coverage ratios,
which have resulted from the low level of interest rates. Combined with the
short-term focus of policymakers and regulators, this issue is preventing many
pension funds from embracing a sustainable, long-term view. It is not only
crucial that sustainable investing is perceived as important, but also that our
industry makes urgent progress in implementing it more comprehensively.
Many interviewees state that the 2007 investigation by the Dutch TV
program Zembla of pension funds’ investments in cluster ammunitions triggered
their sustainability investing activities. Do passive investors need a similar
I doubt whether there will be a similar wake-up call for passive investors,
who simply want to “buy the market” at low cost. That said, it is possible that
the exercise of voting rights will grow. And maybe passive investors will start
using benchmarks that —while remaining mainstream— are more sustainable.
How do you see the relationship between fiduciary duty and
It involves both an attractive risk/return profile on investments and a
long-term view—and by “long-term”, I mean across multiple generations.
The interviewees stress that conviction and leadership from
pension-fund board members are required to give a boost to sustainability
investing. Do you agree?
Yes, that is important. It requires conviction and leadership for pension
fund trustees to take steps to incorporate sustainability more deeply in their
investment processes, especially in the current environment. Low interest rates
and the resulting low coverage ratios are serious headwinds.
In my view, short-term issues such as coverage ratios are receiving too much
attention. This is understandable, given the financial impact they have on
pension funds’ participants. However, it is also important that policymaking
doesn’t ignore longer-term interests. What is really required to give
sustainability investing a shot in the arm is an increase in interest rates,
which would help coverage ratios to improve and should thus refocus attention,
allowing pension board members to give more time to sustainability investing.
However, this will probably take some time.
When do you expect sustainability investing to become a mainstream
activity? What will this mean for returns?
From a global perspective, it will take many years to move from lip service
to true application. This will provide ample opportunity to improve the
long-term risk/return profile of investment portfolios. This is also an
opportunity for Dutch pension funds to regain the trust of their participants.
Sustainability investing isn’t just a hype then?
No. Sustainability investing is here to stay. Robeco will remain dedicated to
Order free copy "Sustainable Returns"
Roderick Munsters is chief executive officer of Robeco Group.