Pension Funds and Sustainable Investment

Tobias Wiss and Natascha van der Zwan will be presenting "Pension Funds and Sustainable Investment: Comparing Regulation in Denmark, Germany and the Netherlands" during the Netspar International Pension Workshop in Leiden on January 25, 2019.

For more information about the conference: https://www.netspar.nl/en/event/international-pension-workshop-19/

The central aim of this project is to compare national regulation of sustainable investment by pension funds. Survey research shows that considerable national differences in sustainable investment (SI) by pension funds continue to exist in Europe and it identifies regulation as one of the drivers for SI (Eurosif 2016). For this reason, it is relevant to explore if and how national regulations impose constraints or offer opportunities for SI by pension funds. The project employs a broad conceptualization of regulation, incorporating 1) national legislation, 2) regulatory activities by supervisory agencies and 3) self-regulation by the pension fund sector itself. We define sustainable investment as an approach to investment that considers environmental, social and governance (ESG) factors in portfolio selection and management. In the study, we will focus on three types of regulation influencing sustainable investment by pension funds: 1) corporate governance rules regarding voting of ESG criteria, 2) investment regulations, that prohibit or mandate investment in particular asset classes; and 3) rules regarding the fiduciary duties of pension fund trustees.

Starting point of this project is the assumption that national regulation, including corporate governance of pension funds, shapes how participant preferences for SI are formulated and voiced. The research therefore compares SI regulation for pension funds in three political economies: the Netherlands, Denmark, and Germany. The project hopes to contribute to existing research in three ways. First, it approaches the topic of social investment from the perspective of comparative political economy by showing how patterns of SI are linked to the regulatory features of national models of capitalism. Second, the project adds to the financialization literature by considering the impact of regulation on the scope and direction of pension investment. Third, our research contributes to growing scholarship on sustainable growth by highlighting the key role of pension funds in steering capital toward economic activities that promote social and environmental sustainability. The project adds a new dimension to this growing literature by analysing which regulatory conditions allow pension funds to steer investment toward sustainable goals and thereby promote non-material, non-growth oriented welfare.