Sustainable Investment Strategies for Pension Funds

Transcription

1 UNEP FI 2003 Global Roundtable Sustainable Investment Strategies for Pension Funds October 20, 2003, Tokyo Masafumi Hikima President & CEO Nikko Asset Management Co., Ltd.

2 Typical SRI Initiatives by Institutional Investors Negative Screening Eliminates certain segments Emphasis on ethical elements Positive Screening Best in class approach Engagement Dialogue with companies Open questionnaire Proxy Voting Community Investing Promote industries/projects of specific regions 2

3 Typical SRI Initiatives by Institutional Investors U.S. U.K. Japan Public Private Inv. Trusts Ins. Public Private Inv. Trusts Ins. Public Private Inv. Trusts Ins. Negative Screening Positive Screening Engagement Proxy Voting Community Investing Inv. Trust - Investment Trusts Ins. - Insurance Companies - Initiatives perceived to be conducted on a sizable scale (Source: Ministry of Environment in Japan) Nikko Asset Management 3

4 Fiduciary Responsibility and SRI SRI and Investment Returns CSR is a risk/opportunity factor which affects corporate business performance. Negative Screening Positive Screening Ethical Criteria Broader CSR/Sustainability SRI is not unrelated to investment returns. It is expected to enhance financial returns or, at least, not to sacrifice them with additional non-financial benefits. 4

5 SRI and Investment Returns Accept Lower Return 3.4% 8.8% 12.1% Accept Slightly Lower Return 61.7% 73.6% 75.8% Return Should not be Sacrificed 9.1% 17.6% 33.6% Japan No Answer 1.3% 0.0% 3.0% U.S.A. U.K. 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% (Source: Ministry of Environment in Japan) * UK investors tend to be more tolerant about investment returns of SRI funds than those in the other two countries. 5

6 SRI and Pension Fund Management SRI mutual funds are qualified 401K products. (U.S. ERISA, 1998) Plan sponsors are required to disclose their SRI policy in their investment policy statement. (U.K., July 2000) Just Pension Project (U.K.) 6

7 Further Challenges of SRI Research Research Coverage More small/mid cap. companies Research on a Global Perspective Reference Index/Benchmark Transparency & Accountability Absolute or Relative Criteria Insufficient Disclosure/Public Information Feed back of Assessment to Companies Combined Approach of Screening & Engagement 7

8 Role of SRI Regulatory Framework U.S. Very few government regulations U.K. Public initiatives and regulatory framework Significance of Regulatory Framework Framework to promote disclosure further Framework to promote corporate initiatives Possible tax incentives 8

9 Screening Process - Example of SRI Pension Fund in Japan - All Listed Stocks Approx. 3,400 Stocks Research Universe Approx. 600 Stocks Eco Universe Approx. 270 Stocks SRI Universe Approx. 90 Stocks Financial Screening Ecological Screening Social Screening Financial Analysis Final Portfolio 9

10 Topical Events on Proxy Voting Establishment of Proxy Voting Guidelines by Plan Sponsors Ex.) Pension Fund Association Government Pension Investment Fund Public Employees Pension Fund Establishment of Self-Regulatory Rules by Industry Association Review of Proxy Voting Guidelines and Committees by Asset Management Companies Has Become One of the Manager Selection Criteria by Plan Sponsors 10

11 Challenges & Perspectives on Proxy Voting Streamlining of Regulatory Framework Increasing Cost of Exercise Problem of Free-Rider Time Constraint Concentration of Shareholders Meetings Insufficient Disclosure by Companies Electronic Processing Establishment of Screening Guidelines Exercise on Foreign Companies Use of Third-Party Advisory Information Information Sharing by Global Institution 11