The Africa Climate Week 2023 last month offered leaders and investors from both Africa and beyond yet another opportunity to convene, and exchange valuable insights, experiences, and innovative solutions aimed at fostering a sustainable and resilient future for the continent.
Having established that pension funds play a pivotal role in climate change through their investment choices, it is more important now than ever to ensure that trustees understand the intricacies of going down that road.
Today, the potential benefits of going green are crystal clear but the path to effective integration can be daunting.
Pension trustees often grapple with understanding the particulars of ESG metrics, varying reporting standards, and the impact of different investment choices.
For example, is the performance of green bonds measured against the performance index of other bonds? What is the additional risk of impact investing where the number of stocks is small and potentially more volatile?
This limited understanding of the financial aspects of ESG factors can hinder the adoption of sustainable investment strategies, potentially limiting the positive impact that pension funds can have internally and on society and the environment.
Fund managers stand at a critical juncture, with the ability to bridge the gap between the climate investing landscape and the understanding of pension trustees.
It's imperative that fund managers take the initiative to translate ESG complexities into tangible insights that resonate with trustees' financial judgment.
Trustees are elected by pension savers based on several factors and investment savviness may not be one of them. Hence, the responsibility lies in presenting information in a manner that is clear, concise, and relevant to the trustees' fiduciary duty.
The journey towards simplifying green investments begins with education. A good place to get started is to get to grips with the investment jargon, which can be baffling. What are sustainable solutions? Climate-focused funds? Impact investing? Fund managers should take the lead in offering educational resources, workshops, and tailored information sessions that shed light on such concepts.
Providing pension trustees with a solid foundation in ESG principles will enable them to make informed decisions that align with both financial goals and ethical values.
Transparency also plays a crucial role. Clear and consistent reporting of ESG metrics can help pension trustees assess the impact of their investments on various environmental and social dimensions.
Fund managers should adopt standardised reporting practices that enable trustees to gauge the progress of their ESG strategies over time ¬- and ensure that trustees understand what is on these reports.
Pension trustees are not only focused on the ethical implications of their investments but also on achieving robust financial returns.
Fund managers should tailor their communications to provide insights that link ESG performance to financial outcomes.
The writer is the CEO of the KenGen Staff Retirement Benefit Scheme. [email protected]