The tendency of pension plans to allow short-term investment considerations to drive investment decisions is not in keeping with the long-term financial interest of beneficiaries with a long-duration liability, according to a government appointed committee report.
The National Round Table on the Environment and the Economy(NRTEE)says a short-term investment approach runs counter to the consideration of many environmental, social and governance(ESG)factors and does not fit well with the long-term interests of pension funds.
“This situation is made worse by the emerging national and/or international standards and practices of three key sets of actors—accountants, actuaries, and regulators—all of which will have an impact on the drive to more sustainable investments in Canada,” the report states.
To remedy the situation, the NRTEE recommends that federal and provincial laws and regulations as well as the standards set out by professional organizations regarding accounting, actuarial valuation, and pension fund governance be assessed for their impact on sustainability and changed where necessary to address the needs of sustainable capital allocation.
It also recommends that institutional investors assess the impact on sustainability of their investment policies and practices, paying particular attention to the quality of the investment research and the alignment of fund manager compensation practices with long-term performance.
To read the report, click here.
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