Asset owners, managers, consultants and governments are struggling find the practical implications and applications of sustainability off-putting, Towers Watson believes.
The consultant’s global head of investment content Roger Urwin said UK pension schemes’ reliance on trust and case law such as Cowan v Scargill, makes it difficult for trustees to have a different interpretation of any mission beyond a purely financial one.
The 1985 Cowan v Scargill case was brought by the National Union of Miners, which wanted the trustees of the National Coal Board Pension Scheme to withdraw any investments in industries competing with coal.
The judge however held that the trustees could be in breach of their fiduciary duty if they did so.
Urwin said a reliance on such rulings acted as a barrier to schemes giving thought to adopting sustainability, because they favour the “solid, granite finance” mission of providing for future generations.
The findings are the result of a global research project conducted in conjunction with Oxford University and supported by 22 asset managers and eight prominent investment thinkers.
Urwin said: “While investors are finding this a challenging area, there are increasing rewards from investing sustainably. At a time when the investment world is changing so radically, investors now need to incorporate longer time horizons and adapt to the structural changes coming from economic, environmental, social and corporate governance factors to be successful.
“Strategies need to factor in the deleveraging cycle, under-powered economic growth resource scarcity and ageing demographics in order to reach their performance potential.
“This advanced planning of adaptive strategies to secure good results for current and future generations of stakeholders lies at the heart of sustainable investment.”
Towers Watson has produced a roadmap to alleviate the pressure for investors wishing to implement sustainability factors but are unsure how.
Urwin said: “The confusions in sustainable investing are crystal clear. Investors struggle with the long term when the short term comes first; and they ignore the extra-financial when it’s the financial that directly counts. This subject deserves our attention because it’s financially rewarding.”
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