Some reflections – plus what I learned about responsible investing
Chaos, complications and excitement – those are my recollections.
I was vacationing in Florida in March 2020 when the US-Canada border was closed, and had to cut the vacation short to rush back to Toronto. No more travel after that, until I spent ten days abroad in mid-October 2021, heading for the UK and then four days in The Hague, Netherlands, to attend the twelfth World Pension Summit (WPS).
I’ve been on the WPS Advisory Board since it was founded, and enjoy everything associated with it, so it became the catalyst for my first trip away from Toronto. It was also the first in-person conference held by Pensions & Investments (P&I), who own the WPS, in an equally long time, so that was an added incentive for me. In fact it was a hybrid conference, not only in-person but also online, and the dual logistics were handled perfectly by their superb team. Now they’re starting to get into action again around the world.
What a wonderful feeling at the conference! It’s the excitement that’s my dominant memory. Seeing long-time friends again, face to face, and meeting new, interesting people – I felt like a child returning to school after the summer break. We all seemed to feel that way, and we said so to one another. And it was great, at the dinner, to be able to chat with those on either side of me and across from me – the sort of thing that never happens in a Zoom meeting.
The complications came from the travel and covid-related testing. In ten days I took four PCR tests in three countries. As it happens, two of them turned out to be unnecessary, as the UK changed its requirements the day before I left Toronto, but I had already paid for them in advance, so I thought I might as well confirm that I was not infected.
Part of the chaos came from the different sets of PCR test requirements, which were not only different as between different countries, but weren’t either crystal clear or even internally consistent for a given country. Normally travel-related stuff doesn’t bother me. For example, I tell people who are worried about what to pack that it’s not worth worrying about: the worst case scenario is that they find they’re short of something after they arrive, but they’re going to a civilized place and can get it there, so the cost of failure is small. But with the new travel rules, the cost of failing to meet unclear requirements is the inability to travel, meaning you’re stuck in a country you’re trying to leave, and it may not even be your home country, so the cost is great. Eventually my wife found the best way to calm me down. She suggested that I should see the requirements, not from my perspective, but from that of one of the security agents. They have to deal with all kinds of people, most of whom are less organized than I am, so I’ll be less of a problem for them than most of the other passengers will be. A good point – thank goodness my wife knows how my mind works – she definitely got me feeling less worried.
There was additional chaos leaving Pearson Airport in Toronto. Several long and unruly lines to enter the security process, unrelated to the departure gates or even the destinations involved, no signposts, and directions that seemed to be misleading. I was sent to a US-bound set of gates rather than UK-bound. I understand from an insider that the number of available agents is far lower than it used to be, accounting for the mass confusion. Anyway, eventually everything somehow sorted itself out. A calm friend, when I related this to him, said there’s a lesson here: not that you shouldn’t travel, but that if you do, you should be prepared to be very, very patient and give everything time. Quite right. Whenever I next travel, I’ll be much calmer and much more patient. It was foolish of me to expect conditions to be similar to those of pre-covid days, given the large numbers traveling again.
At Heathrow Airport in London our overnight flight (my usual daytime flight hasn’t been restored to the schedule yet) arrived when many others did, so the lines to the few working e-passport gates were extremely long and slow and some low-sleep passengers were clearly frustrated. But again, everything eventually worked itself out.
I took trains between London and The Hague, via Brussels, and they were straightforward and comfortable.
Returning to Pearson was simply slow rather than chaotic. It was interesting that we weren’t allowed to disembark together (unlike at Heathrow), because the Arrivals area was far too crowded. Instead, first those with connections were allowed to disembark; then the rest us in groups of 50, with ten-minute intervals between groups.
While I was waiting to disembark I heard a conversation between a passenger and a flight attendant, passing the time. (A feature of the flight was that all of us passengers had to be masked unless we were eating or drinking. Even when expressing a choice – like, coffee or tea – we had to express the choice with our masks on, otherwise the attendant left our row and returned later. And when we were served food or drinks, we could not start to consume them until the entire row had been served and the attendant had moved to the next row.) Was it really necessary to take all these precautions, given that all passengers had to be double vaccinated anyway, as did the crew? Yes, was the response: a surprisingly large number of pilots and attendants had contracted covid, including our attendant, and every precaution was aimed at minimizing the possibility of future spread.
The conference itself made up for all the frustrations.
It was a two-day conference, with an additional Day Zero agenda for a few Chief Investment Officers of pension funds, to visit three major Dutch pension funds and chat with their investment teams in a confidential environment. I was permitted (for the first time ever) to join the group, when I requested it, as a personal favor for a long-time associate of the WPS, especially as it has been many years since I was professionally involved in the investment world and I would therefore be a spectator rather than an intruder.
The day was fascinating. One clear thing that came through was how very important “responsible” investing has become, in the ten-plus years since I graduated from full-time work (you’ll remember that I dislike both the word and the old-fashioned concept of retirement). We were given a timeline of how it has developed, and today it permeates all aspects of investing, and indeed in some jurisdictions the concept of fiduciary responsibility is being changed to permit a duty not only to beneficiaries but to all stakeholders (however vague a notion that might be).
Since this is a common perspective across many (if not most) major funds, and I don’t have the presentations that were discussed, I’m not revealing any secrets if I say that I was able to clarify my understanding about how responsible investing is conducted these days, and I thought some of my blog post readers might be interested.
There are basically three approaches to responsible investing, which I classify as: no, change, yes. (This is the same as it has always been.)
“No” means avoiding investment in things the investors don’t want, like weapons, tobacco, coal, and severe violators of OECD guidelines and the UN Global Compact.
If this is done, one can construct a benchmark that also excludes all those investments. And this new benchmark can serve two useful purposes. The first is to compare your own fund’s performance to it; so, are you outperforming the opportunity set, through your active choices? And second, does this adjusted benchmark outperform the unadjusted, total-opportunity-set benchmark? The second question tells you whether responsible investing itself is paying off.
So far it appears to have done so. I gather there’s a strong sense of conviction that, over the long term, outperformance will continue to result, as investors in increasing numbers will show that they favor responsible investing. More ambiguous is what happens in the medium term, as those increasing numbers of investors go this route, inflating the purchase prices of the acceptable securities. I imagine that there’s bound to be a momentum effect, as early adopters benefit from the prices that are driven up by increased demand. But that says nothing (despite the genuinely-held conviction) about whether this will pay off over the long term. Anyway, those are my own thoughts on the subject.
“Change” means engagement to achieve the ESG (environmental, social and governance-related) conditions that the investors want to achieve. And engagement is achieved either directly or by voting.
“Yes” means that these are the securities that the investors want, because they already represent the good conditions that they seek. For these investments, they don’t simply measure the return; they also design and use some form of measurement of the ESG impact of the companies involved. But that design and measurement is still in its infancy, and there isn’t any generally accepted set of measures. I expect those will evolve slowly over time.
At the WPS conference itself there were two sessions on related topics that I particularly remember.
One was a talk by Nick Stansbury, Head of Commodity Research at Legal & General Investment Management. I recall his pointing out the increasing gap between rhetoric and action on climate change. At their pre-pandemic rate, annual emissions will exhaust the 1.5 degree carbon budget in another 8-12 years. The 7% annualized fall during the pandemic period needs to be sustained (my reaction: yeah, right!) for another decade. Softly-spoken facts from Nick.
The other was by Richard Curtis, the well-known British screenwriter and film director (Mr Bean, Love Actually, Notting Hill). He said simply: You have the power, use it! There’s $50 trillion in global pension assets. So pension providers are in a position to be moral and practical and profitable leaders.
(Question from the audience: Why didn’t he write something called Love Actuary?!!! Richard said, managing to keep a straight face in the midst of general laughter, that it might have improved the movie to include a pension provider.)
I was involved in one session. The WPS gives out awards to the winner and runner-up in four categories of Innovation: Communication, Investments, Plan Design and Technology. There are numerous entries from around the world, and the finalists are assessed by a panel of judges, one panel for each category. I have been a judge in the Investments category for some years, and I had the honor of announcing the results (in previous years it was also welcoming the winners on stage and presenting the awards and being photographed with the winners), along with P&I’s President Chris Battaglia and Chief Operating Officer Nikki Pirrello.
It didn’t occur to me until afterwards, but I checked and, in alphabetical order, the countries from which this year’s winners and runners-up (8 of them in all) came were: Australia, Canada, Chile, Malaysia, Singapore, Spain, the UK and the USA: 8 awards, 8 different countries. I wonder if that has ever happened before? Regardless, it says a lot about the truly global scope of what the WPS represents.
- International travel now involves unforeseen complications and requires a lot of patience.
- “Responsible” investing is in the institutional mainstream, and for the leaders it takes the form of classification of investments into “yes, this qualifies,” “no, this is to be totally avoided,” and “OK to invest, but in order to improve ESG outcomes, engage directly or by voting.”
I have written about retirement planning before and some of that material also relates to topics or issues that are being discussed here. Where relevant I draw on material from three sources: The Retirement Plan Solution (co-authored with Bob Collie and Matt Smith, published by John Wiley & Sons, Inc., 2009), my foreword to Someday Rich (by Timothy Noonan and Matt Smith, also published by Wiley, 2012), and my occasional column The Art of Investment in the FT Money supplement of The Financial Times, published in the UK. I am grateful to the other authors and to The Financial Times for permission to use the material here.