Pension funds can enhance society in a way that doesn’t have to interfere with their fiduciary integrity and financial sustainability, according to a new report from the International Centre for Pension Management.
After working on a social infrastructure paper and a roundtable discussion, what at first seemed as a one-and-done presentation became an international working group at the ICPM, according to Gareth Gibbins, a pension and policy expert who co-authored the report and is a member of the working group.
Read: How are stewardship guidelines helping institutional investors address systemic risks?
Social infrastructure, the report noted, includes physical spaces like schools and hospitals and intangible systems like trust and community networks. “Pension funds are already doing this and they may not even know it in terms of the social value they’re generating,” says Gibbins.
These investment organizations are contending with ageing populations straining public systems, which makes pension fund stability essential to social security, the report noted.
It also includes an infrastructure matrix in which pension funds can visualize assets in four different listings covering tangible facilities and structures that support an economy. These include transportation, physical facilities designed for the well-being of a community, non-physical assets contributing to efficient functioning and growth of the economy and intangible assets contributing to the development of a society.
“We all appreciate it’s easier to communicate when you can put a number on something, . . . but it’s hard to talk about the qualitative,” he adds.
Read: ESG considerations leading to higher private equity value creation: BCI
The report argued in addition to recognizing the social infrastructure already established by pension funds, these organizations should measure and report on these outcomes so that more action can take place based on the evidence.
Gibbins says this report isn’t related to advancing the environmental, social and governance cause, the review of impact investing opportunities or calls for pension funds to invest more in domestic markets to boost economic growth. “The starting point is this social impact — the social infrastructure that the plans create already happens by virtue of what they do. Everything in the blueprint is intended to be consistent with a pension fund’s duty — it’s not about trade-offs, it’s not about maximizing risk adjustment returns or taking care of the environment.”
The report noted impact can be measured through the social return-on-investment metric, which expresses non-financial outcomes in monetary terms. Organizations could also work on the development of impact metrics tailored to their mission. It also found by demonstrating social value with accurate measurements, these organizations can add legitimacy and strategic clarity to this work.
Read: 96% of Canadian institutional investors rely on ESG integration: report