CFA Society Netherlands: Security and resilience require pension funds to make choices
This column was originally written in Dutch. This is an English translation.
Peace, security and the resilience of society are under pressure in Europe. Geopolitical tensions are mounting and the future of US involvement in European security is uncertain. Pension funds need to consider the role they wish to play in this context.
By Jaap van Dam, Member of SPIL, Owner of VanDam Investment Advisory, Strategy for Asset Owners
Security and resilience are no longer abstract geopolitical issues far removed from our daily lives. They are fundamental to the functioning of our economy and our financial markets. This makes them both important and urgent for pension funds. This applies not only from a purely financial perspective. Responsible investment also plays a major role here: many pension funds promise their members that they want to contribute to a ‘better world’. It is clear that this better world now encompasses more than just tackling climate change and restoring biodiversity.
Because security and resilience have been taken for granted in recent decades, it will take time for pension fund boards to form an opinion on the matter. There are not yet many Dutch pension funds with a clear, public stance or policy on security and resilience. This is despite the fact that geopolitical developments can directly affect their portfolios. Furthermore, they can use their investments to take responsibility and exert influence. It is therefore time for pension funds to take a stance, both towards members and towards a broader group of stakeholders, including the government.
A board could, for example, use the fund’s mission and investment principles to ask whether there is a role for the fund to play. This could be from the perspective of influence, responsibility or reputation. A pitfall here is trying to take on too much. It is also wise to maintain the right distance from politics. The relatively rapid shift in opinions regarding security and resilience could put this distance under pressure and lead the government to look specifically to pension funds, for example to invest in defence-related projects.
The current debate focuses heavily on investing in defence. However, there may actually be an opportunity for pension funds to invest in the broader agenda of security and resilience. Consider, for example, a resilient energy or data infrastructure. Or contributions to European autonomy in a number of crucial sectors. This is also consistent with their role as long-term investors. There is no single correct approach: choices will vary from fund to fund, depending on their mission, convictions and characteristics.
The board discussion covers a number of key themes. What risks do we see for the fund, participants and society? Should, do we want to, or are we able to contribute to security and resilience? Does this fit with the role we wish to fulfil? Where do we want to take responsibility, or where do we believe we might have an impact? How does this relate to our ethical principles? And last but not least, how do we involve members in our decisions? The knowledge paper ‘Robust policy in uncertain times. Board decisions on security and resilience’ by the Sustainable Pension Investments Lab (SPIL) in collaboration with CFA Society Netherlands provides a guide for pension fund boards to formulate a position or draft policy. An important and urgent matter.
Read the column on Financial Investigator magazine
