• Premal Ranchod

Ten questions to help you retire into a better world

2020 – the year that forced history to sit up and reckon with itself. For those entering the world of work, the word “pension” or “retirement” may sound far off. Given that you have until 2060 (at the very least) to reflect upon its importance, is it really a debate for “today”?

If we are living twice as long, it is fair to assume that healthcare costs increase. If population growth increases faster than death rates, it is safe to assume that a greater societal and environmental burden exists. For thousands of years, economic progress was largely linear and linked to population growth. Without machines or technological innovations, one person could only produce so much with their time and resources.

With technological progress came growth in gross domestic product, inflation, interest rates and rampant inequality. These separate the developed nations from the developing. A world with low to negative interest rates, falling inflation, increased inequality, energy poverty, competing interests, the rise of the east and pockets of fascism within democracies. A changing world order needs new tooling. Global warming through carbon emissions illustrates a social and environmental emergency.

What good is it if your fund achieves its return target of inflation plus a few per cent when the world that you retire into is a far cry from your utopia?

The concept of responsible investment (RI), and impact of investment, takes a late, but much-needed centre stage to protect pension fund destruction. Pension fund regulation in most countries has evolved over the past decade to include environmental, social, governance (ESG) factors and RI terminology within their ambit. Legislation helps to shine the spotlight on issues and provides a much-needed seat at the table for all investment and pension fund related sustainability. The danger, however, is that “tick box” ESG factors become merely rules in a framework. Economic outcomes must accompany long-term financial returns or targets.

Millennials tend to be much more proactive than previous generations when it comes to their investments and also express a desire to invest in companies that echo with their values.

Here are questions to ask if you want to be a successful ESG investor:

  1. Does your fund have an ESG or RI policy?

  2. Does the fund or its underlying asset managers consider the importance of sustainability?

  3. Is the fund manager capable of understanding and assessing the impact of ESG risks?

  4. Can the fund manager highlight topical matters that impact outcomes?

  5. Does the fund manager vote on proxies of listed companies?

  6. Does the fund manager report on the above?

  7. What progress are companies making toward the United Nations Sustainable Development Goals?

  8. Where does my capital get allocated?

  9. Are there avenues for investment that cater to both financial returns and ESG outcomes as they ought to be mutually inclusive?

  10. Do I as the investor have any personal values that I wish were catered for by my financial adviser?

The role of ESG has gained more prominence and expansion because of the pandemic, ESG investors outperformed their counterparts in the first quarter of 2020 and as a result, investors are prioritising investing with a conscience.