Consultants Back TPR’s ESG Guidance | Chief Investment Officer

Twelve major investment advisory firms have signed a joint letter calling for the support of guidance issued by the UK’s The Pension Regulator (TPR) concerning environmental, social, and governance (ESG) factors in investment decisions.

“We believe that ESG is a fundamental part of success in long-term investing, therefore we are drawing the guidance to the attention of UK pension fund clients through a variety of routes, such as putting consideration of ESG on trustee meeting agendas, issuing briefings, and/or holding training sessions,” said the firms in the letter. “We also recognize the significant role that client-facing consultants can play in ensuring that our clients are well-informed on the issues.”

The 12 firms include Allenbridge, Aon Hewitt, Barnett Waddingham, bfinance, Cardano, Hymans Robertson, JLT Employee Benefits, Lane Clark & Peacock LLP, Mercer, Quantum Advisory, Redington, and Willis Towers Watson.

The investment consultants have agreed to ensure clients are made aware of TPR’s guidance that pension plans take into account ESG factors where they are financially material. The initiative was spearheaded by The Association of Member Nominated Trustees (AMNT), and the UK Sustainable Investment and Finance Association (UKSIF).

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“The TPR guidance and this initiative reflect growing recognition that ESG factors will affect the

value of pension funds,” said the AMNT and the UKSIF in a statement. “Pension funds typically rely on guidance from investment consultants to make their investments, and this work means these new and emerging risks will be better addressed to the benefit of millions of pension savers.”

According to TPR’s guidance on ESG, because pension funds invest for the long-term, they are exposed to long-term financial risks, including risks relating to factors such as climate change, unsustainable business practices, and unsound corporate governance.

“Despite the long-term nature of investments, these risks could be financially significant, both over the short and longer term,” said TPR in its guidance. “You should therefore decide how relevant these factors are to inform your investment strategy … take environmental, social, and governance factors into account if you believe they’re financially significant.”

The AMNT and the UKSIF acted on behalf of members to convene UK investment consultants to ask how their firms will act on the ESG guidance issued by TPR earlier this year.

“We were really concerned that our members, many of them small pension funds, would not be told of this absolutely vital advice from The Pensions Regulator,” said David Weeks, co-chair of AMNT. “We are delighted that so many consultants—representing such a significant percentage of the market—have agreed to raise the issue with their clients.”

Tags: ESG, Pension, The Pensions Regulator, UK

The Oregon Investment Council has decided to change the investment strategy of the individual account program (IAP) for members of the Oregon Public Employees Retirement System (OPERS).

As of the close of business on Dec. 29, the balance in member IAP accounts will be transferred to a custom IAP target-date fund that corresponds with participants’ birth year, and an approximate retirement age of 65.

The IAP is an account balance-based benefit for all active Oregon PERS members, and is in addition to their pension benefit. Currently, 6% of their salary, whether contributed by the participant or paid by their employer, goes into their IAP.

On Jan. 2, 2018, Oregon PERS members will be invested in the new IAP Target-Date Funds. Oregon PERS said the main objective of the IAP program is to achieve the highest total returns, while incurring an appropriate level of risk, in addition to recognizing that risk levels should vary based on age. The change will be automatic, and no action is required by participants.

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Since the inception of the IAP in 2004, the money in each IAP account had been invested the same way for every person, regardless of their age. That meant that people nearing retirement age would have had the same investment risk profile as younger workers.

Money in members’ IAP will be shifted to a target-date fund that is chosen based on their year of birth. For example, a participant born between 1973 and 1977 would be in the IAP 2040 Target-Date Fund. Investments in each fund will adjust over time to reduce investment risk, and potential losses in market downturns. Younger members’ IAPs will be invested in stocks, private equity, real estate, and other alternatives that emphasize earnings and growth potential. As members get closer to retirement, the investments in their funds gradually become more conservative to help protect against market fluctuations.

When a participant retires, he or she can receive his or her IAP account balance as a lump-sum payment, or in installment payments over a five-, 10-, 15-, or 20-year period. Those who choose to receive the entire IAP account balance as a lump-sum payment, may opt for a cash distribution, or roll it into a traditional or Roth IRA, an eligible employer plan, a 457 deferred compensation plan, the Oregon Savings Growth Plan, or another qualified plan.

If a retired member dies before all installment payments are completed, their beneficiary is entitled to receive the remaining installment payments, and may choose to receive the remaining balance in a lump-sum payment.

Tags: Individual Account Program, Oregon Investment Council, Oregon Public Employees Retirement System (PERS), Pension

Oregon PERS Changes Investment Strategy