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How Business Advice Could Improve Your Pension

Using techniques intended for business could help to run a better pension fund, actuaries have claimed.

(May 18, 2012)  —  Company bosses should implement business-management techniques to help control their pension fund risk and make better investment decisions, a study has claimed.

Enterprise Risk Management (ERM), which has usually been implemented to run companies more efficiently, should be applied to management of the associated pension fund, actuaries at Hymans Robertson have said.

In the latest edition of Placard, the magazine for the Association of Consulting Actuaries, Jon Hatchett, David Bowie and Nick Forrester wrote: “While actuaries have been helping pension schemes manage elements of their risk for decades, ERM provides a conceptual framework that can help inform the crucial management decisions in a consistent, transparent and effective way.”

The trio continued: “This framework is helpful in advising both trustees, whose governance has come under greater scrutiny, and sponsors where defined benefit pension schemes are increasingly viewed as financial risks rather than employee benefits.”

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Advantages of using this technique, according to Hymans Robertson, include being able to identify objectives and constraints, recognise, analyse, mitigate, and monitor risks and improve overall decision-making.

“Since any analysis is about the future, and so is ultimately subjective, ERM is as much art as it is science. Yet ERM can also reduce the costs of running a scheme, by allocating time and energy proportionately to the impact they can make, and reducing the need for fire-fighting,” they said.

The technique, in Hymans Robertson’s view, could help companies running pension funds to think about what they wanted to achieve and avoid, and what might stop them from doing so.

The group said businesses should remember that not all risk was necessarily bad and taking risk may represent the only way to have any prospect of achieving their objectives.

“The key is to make sure that these risks are well managed, and their potential consequence on the various constraints understood, without losing sight of the overall objective. The management process helps schemes assess which risks are likely to be rewarded, articulates for what reason the risks are being taken and ensures the scheme is not inadvertently over-exposed to particular risks or a particular scenario unfolding,” they said.

In their view, ERM offered pension funds a way of “thinking about what they want to achieve and want to avoid, what might stop them from delivering those successes, gathering the pertinent information coherently, analysing possible outcomes consistently and then implementing practical decisions. “

The ERM approach could help businesses link common sense with relevant analysis and effective governance arrangements to produce ‘dramatically improved decision-making’, which was ‘faster, more consistent and with an audit trail’, Hymans Robertson said.  

Home > News > Regulation > Institutional Investors of the World Unite on 'Fracking'
Regulation

Institutional Investors of the World Unite on 'Fracking'

A group of activist investors representing $1 trillion in assets under management are seeking action from the hydraulic fracturing industry due to the increasing level of uncertainty about its potential for environmental damage.

(May 18, 2012) — A group of institutional investors representing $1 trillion in assets under management have united to push for higher standards for hydraulic fracturing, a process energy companies use to extract natural gas.

The process — known as “fracking” — involves shooting chemicals and millions of gallons of water into wells to release natural gas in shale rock, which has been controversial and blamed for a variety of environmental damage.

Boston Common Asset Management, the Investor Environmental Health Network, and the Interfaith Center on Corporate Responsibility (ICCR) announced that 55 major investment organizations and institutional investors concerned about environmental, social and governance issues (ESG) have joined forces to support “best practices” for shale gas franking. The group is supporting a number of core goals and practices that they believe companies that use fracking should abide by, including the following:

1) Manage risks transparently and at board level.

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2) Reduce surface footprint.

3) Assure well integrity.

4) Reduce and disclose all toxic chemicals.

5) Protect water quality by rigorous monitoring.

6) Minimize fresh water use.

Steven Heim, Managing Director and Director of ESG Research and Shareholder Engagement, Boston Common, said: “Assuming that hydraulic fracturing is going to continue to be used in some form, investors need to have greater certainty in the marketplace as to industry practices and government regulation. Currently there is no such certainty and that is really why investors are speaking up. The marketplace has spoken: The best course here for investors, the environment and human health will be if all shale gas extractors wake up, get the message, and use these tools to do it right.”

Sister Nora Nash, Director of Corporate Social Responsibility, Sisters of St. Francis of Philadelphia, and member of the ICCR, noted that shale gas companies must earn their ‘social license’ by operating in a more responsible manner.

“Companies must address the community and environmental concerns prompting bans and moratoria. They must listen closely, respond sensitively, and account to both investors and communities for their actions. Otherwise, this is an uncharted process of unwanted development that deprives communities of their rights and leads to litigation and loss of investor confidence,” according to Nash.

The supporting organizations represented in the coalition encompass dozens of institutional investors in the US, Europe, and Australia, including: APG All Pensions Group, Australian Council of Superannuation Investors, Dexia Asset Management, Mercy Investment Services, Green Century Capital Management, and Regnan – Governance Research & Engagement Pty Ltd.

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