Pension funds and fossil fuel phase-out: historical developments and limitations of pension climate strategies.

Despite the decades of international climate negotiations and several landmark agreements, global efforts to date to restrict fossil fuel production in line with climate targets have been unsuccessful. As national and international policies continue to fall short of phasing out fossil fuels, increasing attention has been paid to non-state actors, like pension funds, as a potential source of more ambitious climate action. As major asset owners, large shareholders in fossil fuel companies, and historically activist investors, pension funds are theoretically well-placed to contribute to phasing out fossil fuels. Despite growing recognition of this potential role for pension funds and other major investors in climate change mitigation, there has been little attention to pension funds' historical record on climate change, or to how their climate strategies have developed and changed over time. This paper examines how the climate strategies of the largest US and European pension funds have evolved in relation to key developments in international climate agreements and the extent to which these strategies contribute to restricting fossil fuel supply. Through an analysis of the annual, governance, and sustainability reports of 6 pension funds from 1997 to 2022, we examine the strategies pension funds have adopted to address both climate change and fossil fuels. Pension funds have demonstrated responsiveness to the signals of international climate agreements, adopting a range of strategies with respect to climate change (amongst others, integrating ESG principles, increasing their sustainable investments, and setting net zero goals). Their explicit attention to fossil fuels and contribution to supply-side interventions take the form of systematic shareholder engagement, (selective) divestment, and lobbying policymakers. While pension fund climate action is growing , the ambition of their strategies is not aligned with a rapid fossil fuel phaseout; their efforts are often focussed on improving disclosure and transparency and demonstrate complacency with minimal improvements from fossil fuel companies. If pension funds are to significantly contribute to phasing out fossil fuels, redefining pension fund responsibilities and the traditional shareholder role will likely be required.

Beyond divest vs. engage: a review of the role of institutional investors in an inclusive fossil fuel phase-out.

Institutional investors, who control as much as $154 trillion globally, may play an important role in shaping the energy transition as major stakeholders in fossil fuel producing, distributing and consuming companies. Research on investors and fossil fuels has focused largely on the divestment movement or on shareholder engagement. However, given their limited success to date, additional strategies to influence the fossil fuel sector are merited. This review paper expands the scope of attention to investors, asking: what strategies for influencing the fossil fuel industry are available to institutional investors and what are the implications of these for achieving an inclusive fossil fuel phase-out? Through a systematic review of 153 papers, we identify seven strategies for influencing the fossil fuel phase-out: divestment, shareholder engagement, hiring practices, engaging the financial sector, engaging indirect financial actors, litigation, and green investment. These strategies represent ways for investors to increase the impact of their engagements, as well as areas deserving greater attention from academics, policymakers, and activists. Across these strategies, we note trade-offs in favour of financial returns at the expense of social, ecological, and equity outcomes. We argue that future research should focus on: (a) the role of under-studied actors in aligning finance with climate goals; (b) the implications of investor action for an inclusive energy transition; and (c) policy solutions capable of overcoming investors' short-term profit motives to instead incentivise long-term investor engagement with climate issues.

Legal mandates and uncertainties in how to apply fiduciary responsibility with respect to climate change result in investors and asset managers prioritizing short-term profits at the expense of climate goals.Voluntary investor efforts focus predominantly on transparency and disclosure and are insufficient to meet climate goals. Legally binding decarbonization strategies are needed to align finance with the Paris Agreement.Influence over investment strategies is increasingly concentrated in a small number of powerful actors. Policymakers should consider not only asset owners, but also asset managers, index providers, and proxy advisory firms.Investors can increase their climate action by incorporating policies on climate into their mandates for asset managers and engaging with fossil fuel financiers.

A systematic literature review on sustainability issues along the value chain in insurance companies and pension funds.

Sustainability is now a priority issue that governments, businesses and society in general must address in the short term. In their role as major global institutional investors and risk managers, insurance companies and pension funds are strategic players in building socio-economic and sustainable development. To gain a comprehensive understanding of the current state of action and research on environmental, social and governance (ESG) factors in the insurance and pension sectors, we conduct a systematic literature review. We rely on the PRISMA protocol and analyze 1 731 academic publications available in the Web of Science database up to the year 2022 and refer to 23 studies outside of scientific research retrieved from the websites of key international and European organizations. To study the corpus of literature, we introduce a classification framework along the insurance value chain including external stakeholders. The main findings reveal that risk, underwriting and investment management are the most researched areas among the nine categories considered in our framework, while claims management and sales tend to be neglected. Regarding ESG factors, climate change, as part of the environmental factor, has received the most attention in the literature. After reviewing the literature, we summarize the main sustainability issues and potential related actions. Given the current nature of the sustainability challenges for the insurance sector, this literature review is relevant to academics and practitioners alike.

COVID-19 and attitudes towards early withdrawal of pension funds: The role of trust and political ideology.

In response to the COVID-19 pandemic, the Chilean Congress approved three laws between July 2020 and April 2021 that allowed early withdrawals of pension funds without any eligibility constraints. In this paper, we use nationwide survey data to examine the factors associated with people's assessments about the suitability of these policies in the context of the pandemic, with a particular focus on trust and political ideology. We find that respondents that declare high levels of trust in Chile's pension system, financial system, and political institutions and actors tend to oppose early withdrawal policies. Similarly, respondents on the right of the political spectrum and those that voted for the incumbent president, who opposed this policy, also declare opposition to early withdrawals. Overall, our findings suggest that political attitudes and beliefs are associated with policy views on changes to Chile's pension-fund system and that support for early withdrawal policies may be driven by lack of confidence in institutions.

Trust and Distrust in Pension Providers in Times of Decline and Reform: Analysis of Survey Data 2004-2021.

Trust in pension providers by participants is essential because pension providers try to fulfill their pension promises in a fundamentally uncertain world. Reforms and crises are therefore the ultimate testing ground for pension trust. In this paper we estimate with repeated cross-sectional survey data how trust and distrust in Dutch pension funds and the government have evolved over the period 2004-2021 and what the impact of financial stability on trust in these two institutions has been. Financial stability of pension funds, measured by their funding ratio, is shown to affect trust positively, but it does not decrease distrust significantly. Based on the estimation results, achieving a situation where the majority of the adult population trusts pension funds is likely to be attained at funding ratios of 115 or higher. Financial stability of government (measured by government debt/GDP ratio) does not affect either trust or distrust levels. Underlying drivers of distrust and trust such as personal characteristics are also notable: self-employed are more prone to distrust pension funds than employees. Women are more than men likely to take a neutral position.

[Health and investment: How are the 237 billion euro of the German professional pension funds invested?] / Gesundheit und Kapitalanlagen - wie sind die € 237 Mrd. der berufsständigen Versorgungswerke angelegt?

BACKGROUND: Exceeding ecological limits through climate crisis, loss of biodiversity, altered biogeochemical cycles and novel substances is dangerous and leads to increased morbidity. Hence, financial assets should be divested from hazardous industries and re-allocated to support the transformation to an economy that keeps activities within ecological limits. The present study investigates how sustainability criteria are applied to the assets of German pension funds. METHODS: A survey containing 26 items on 1) business practice, 2) implementation of sustainability strategies, 3) application of ESG criteria to investment decisions, and 4) projects and goals was sent to each and every of 93 German professional pension funds. Furthermore, their annual business reports and publications were analyzed for information on sustainability efforts. RESULTS: 37 of 93 pension funds responded to our survey, 8 of them returned the query. All agreed that ESG criteria are part of their business culture. Predominantly, they adhere to common standards for sustainable investments (UNPRI [United Nations Principles for Responsible Investment], 75% approval); yet, they do not exclude the production of goods that are potentially harmful to health (e.g., tobacco and alcohol). DISCUSSION: A minority of the participating pension funds agrees that ESG criteria are part of their business culture. However, only few of them provide information about their actual application. Nevertheless, there are pension funds that do not respect sustainability criteria in an appropriate way, and thus take unnecessary financial risks and invest in harmful industries.

Atração de investimentos privados para a infraestrutura no Brasil / Atraer inversión privada para infraestructura en Brasil / Attracting private investments for infrastructure in Brazil

Resumo Este estudo busca identificar as principais motivações e barreiras para a atração de investimentos do mercado de capitais para o setor de infraestrutura no Brasil. Entre os resultados da pesquisa, verificou-se que os incentivos variam conforme o tipo de investidor. Pessoas físicas são fortemente atraídas pela isenção fiscal prevista na Lei nº 12.431/2011, para a compra de debêntures incentivadas, e hoje representam um dos principais investidores em infraestrutura no país. Já fundos de pensão domésticos não são incentivados pela isenção da lei - seus investimentos são isentos de Imposto de Renda - e consideram baixo o spread pago pelos emissores das debêntures incentivadas. Investidores estrangeiros avaliam como desfavorável o ambiente de investimentos no país, em função de fatores como a alta volatilidade cambial e a instabilidade política. Conclui-se, portanto, que, para suprir a lacuna de investimentos em infraestrutura, há a necessidade de reformas institucionais mais amplas para atrair investidores de longo prazo. A certificação verde de projetos de infraestrutura representa outra estratégia interessante para a atração de investimentos, sobretudo estrangeiros.

Resumen Este estudio buscó identificar las principales motivaciones y barreras para atraer inversiones del mercado de capitales al sector de infraestructura en Brasil. Entre los resultados de la investigación se encontró que los incentivos varían según el tipo de inversionista. Los inversionistas individuales son fuertemente atraídos por la exención de impuestos prevista en la Ley nº 12.431/2011 para la compra de debentures incentivados y hoy representan uno de los principales inversionistas en infraestructura del país. Los fondos de pensiones nacionales, por su parte, no están incentivados por la exención de la ley (sus inversiones están exentas del Impuesto a la Renta) y consideran bajo el margen pagado por los emisores de debentures incentivados. Los inversionistas extranjeros consideran que el ambiente de inversión en el país es desfavorable, debido a factores como la alta volatilidad del tipo de cambio y la inestabilidad política. Por lo tanto, se concluye que, para llenar el vacío de inversiones en infraestructura, se necesitan reformas institucionales más amplias para atraer inversores a largo plazo. La certificación verde de proyectos de infraestructura representa otra estrategia interesante para atraer inversiones, especialmente extranjeras.

Abstract This study sought to identify the main drivers of and barriers to attracting capital market investments to the infrastructure sector in Brazil. The research findings indicate that the incentives vary according to the type of investor. Individual investors are strongly attracted by the tax exemption provided for in Statute 1,2431/2011 to purchase incentivized debentures, and, today, they represent one of the main investors in infrastructure in the country. On the other hand, domestic pension funds have no incentives based on this piece of legislation (their investments are exempt from income tax). For these pension funds, the spread paid by the issuers of incentivized debentures is low. Foreign investors consider the investment environment in the country to be unfavorable due to factors such as high exchange rate volatility and political instability. Therefore, broader institutional reforms are needed to fill the gap in infrastructure investments and attract long-term investors. Green certification of infrastructure projects represents another interesting strategy for attracting investments, especially foreign investors.