Local pension sector can be key boost to climate investing

This month, nations will gather for the UN Climate Change Conference (COP27) in Egypt's green city of Sharm El-Sheikh.

Every year, pledges are made by countries to mend their ways in key focus areas such as carbon emissions. The centrality of finance as the catalyst for change in climate matters has been reiterated. As such, pension funds can be looped in to drive change and derive satisfactory value for their members.

As the largest mobiliser of private finance globally, pension funds have a huge potential to alter climate change battle.

With assets under management (AUM) approaching the Sh1.5 trillion mark, local pension funds make up the largest institutional investors with substantial long-term interests - enough to influence Environmental, Social and Governance (ESG) investing.

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As legislation regarding ESG factors becomes ambitious, pension fund trustees have a fiduciary duty to protect the financial interests of their members.

As a result, the trustees and fund managers are often confronted with the 'values versus value' dilemma in investment decisions they make, and are expected to act with utmost financial prudence.

In the wake of the sustainability debate, the trustee might also be tasked with enlightening the members on the need to adopt ESG values. ESG pillars have been around for decades. They have been evolving over the years. The concept took hold in the 1970s when investors began aligning around social concerns like apartheid in South Africa.

However, it was not until the 2020s when there was increased sense of urgency globally on climate matters that seem to have brought the three pillars convergence. For instance, climate change not only threatens investment portfolios but also employers' contributions as well as the retirement life of savers.

This is why pension funds should prioritise ESG. There have been numerous calls to standardise ESG reporting to enable comparability between firms.

This will enable trustees to bring into line ESG with the funds' investment strategies and measure their risk exposure.

Conversations around gender equality, human rights violations and climate change are unlikely to die down, especially among the younger generations.

Pension schemes should thusseize the opportunities to support sustainable retirement solutions.

The writer is the CEO KenGen Staff Retirement Benefits Scheme