Pension funds and institutional investors are accused of not taking advantage of opportunities to make a positive environmental and social impact. Are investors failing to adjust their strategies?

Catherine Howarth, chief executive of campaign group ShareAction, slammed pension funds for not doing enough to achieve a positive outcome for the environment and society in their investments, saying they could go further.

Speaking at the City of London Corporation’s Finance for Impact Summit on Monday, Howarth said pension funds had many opportunities to do good but “that is a bit of a Venn diagram”, adding they are “well financially rewarded to exploit the planet and the people”.

“The reality is there is market failure at work. There are many investments that pension funds and other institutional investors are invested in which generate quite significant negative impacts on the environment, on society [and] on individuals.”

She said the appetite for people with pension savings to be more ambitious about positive impact  is “higher than their fiduciary investors’ who make decisions on their behalf”.

Howarth praised pensions minister Guy Opperman for his “bold” initiative on Friday, when the government said it is setting up a taskforce to come up with measures for social factors.
 

 
She also acknowledged the government had introduced reforms to ensure investors manage environmental and social risks but added: “They should actually be able to go a little bit further and acknowledge that many of the investments they hold do have negative impacts that actually come back and affect the lives of their beneficiaries.”

Sacha Sadan, ESG director at the Financial Conduct Authority, said the regulator was working with the International Sustainability Standards Board on metrics for sustainability reporting.

Speaking at the same event, he said: “The most important thing is we get one metric on supply chain, one metric on diversity... so that then we can think about product impact, and then we're using the same language.”

Sadan raised concerns over greenwashing or social washing of certain products where there are no key performance indicators.

“It's quite important that we then bring in a labelling standard very soon and make sure that if it's not fit for purpose, we will stop people [from launching such products], not because we want to stop finance - we want the credibility and the trust to be there so that people can feel confident,” he said.

Are regulators doing enough to help pension funds to be more ambitious with impact investing?