Canadian and European funds lead the way among the most responsible asset allocators, according to a new report from non-partisan think tank New America.
The recently released Bretton Woods II Leaders list of the 25 “most responsible” asset allocators was culled from among hundreds of sovereign wealth funds (SWFs) and government pension funds (GPFs) representing more than $20 trillion in assets under management. The top funds were chosen for their “high conviction in responsible investing,” and their belief that “ESG is material to long-term returns,” according to New America.
The group was then screened for availability of information, minimum size of assets, and investment activity, which resulted in a final list of 121 SWFs and GPFs, comprising $15 trillion in assets. Each of the 121 asset allocators was rated by two to three independent expert reviewers, until the list was whittled down to the 25 highest-scoring SWFs and GPFs.
Although Canada had the highest representation, claiming six out the top 25 funds, and another nine were from Europe, the leaders list was rather diversified, and included funds from Brazil, South Korea, and South Africa. New America said one main characteristic of the leaders is that they “are constantly looking for ways to improve and deepen their responsible investing programs and they are committed to learning from peers and sharing their insights.”
The leaders include 18 GPFs and seven SWFs with a total of $4.95 trillion in combined assets, and individual funds ranging from $10 billion to $1 trillion in assets. According to New America, the combined asset base of the group is larger than the GDP of every country in the world except the US and China.
Among the largest funds represented on the list were Norway’s $981 billion Government Pension Fund – Global; the Netherlands’ $532 billion APG Groep; South Korea’s $522 billion National Pension Service; and the $332 billion California Public Employees’ Retirement System (CalPERS). The only other US fund to make the list was the $192 billion New York State Common Retirement Fund.
The report also provided “recommendations for success” identified by the leading asset allocators, which included:
- Understand the non-traditional financial risks that could impact long-term value creation in your portfolio, and make sure those risks are properly priced and addressed.
- Develop a culture of transparency, and continually refine your communication protocols. If you don’t communicate your responsible investing principles and investment framework effectively, it will limit your chances for success.
- When it comes to implementation, begin with the tasks that are easiest for your organization, such as introducing ESG into the due diligence process for private equity.
- Make sure the companies you invest in know what they are doing, operate with a long-term perspective, understand both traditional and non-traditional risks, and price and address those risks properly and consistently.