Sustainable investment of pensions requires proper substantiation and careful evaluation!

That sustainable investments provide adequate pensions together with a more sustainable society is a popular narrative among pension funds. But Rob Bauer (Maastricht University/ECCE), Jules van Binsbergen (Wharton School), and Esther Eiling (University of Amsterdam) argue that it should be evaluated and substantiated carefully in a recent article published in ESB. Key points they raise include:

1. Non-sustainable companies will not automatically “green” their operations when pension funds exclude them from their investment portfolios.

2. A concentrated ESG portfolio is expected to have a less favorable risk-return ratio than a more diversified portfolio.

3. Measurement errors in the sustainability preferences of participants make it difficult to demonstrate convincing support.

The authors also warn that ESG investing may be portrayed as a successful investment choice whenever it delivers competitive returns. In contrast, disappointing returns may be too easily justified as the ‘inevitable price for a better world’, while a proper substantiation and measurement of impact may be lacking.Read the article (in Dutch) here: https://lnkd.in/ey_vuRrM