OMFIF: public pension funds at forefront of net-zero transition
The Official Monetary and Financial Institutions Forum’s 2022 Global Public Pensions report reveals that most funds have accelerated their drive towards sustainable finance.
Global public pension and sovereign funds are “leading the way” in financing the sustainable transition among institutional investors, a new report by the Official Monetary and Financial Institutions Forum (OMFIF) has found.
The OMFIF 2022 Global Public Pensions report covers 100 global public pension funds and 50 sovereign funds with total assets of over $27trn.
OMFIF, a think tank for central banking, economic policy and public investment, found that 76% of funds in 2022 reported investments in environmental, social and governance (ESG) assets and 59% possessed green bond holdings. Most of the surveyed funds reported that they were looking to increase exposure to green investments over the next 12-24 months.
The report also detailed that the share of public funds holding green equities had increased in the last year from 38% in 2021 to 59% in 2022.
Speaking at the launch of the report, James Ruane, CDPQ’s managing director of capital solutions, said that ESG was “integral” to all investment decisions made by the $377bn Quebec-based public pension fund.
“Every team has a carbon budget. In terms of every investment we make, we benchmark the carbon intensity of that and think about, overall, how carbon-intensive the portfolio is,” he added.
OMFIF’s research also found that 80% of funds reported climate change within their top three medium to long-term concerns, which makes it a more important factor than geopolitical tensions (70%), demographic trends (32%) and low equilibrium interest rates (27%).
In terms of every investment we make, we benchmark the carbon intensity of that and think about, overall, how carbon-intensive the portfolio is.
Focus on renewables
A key trend identified in the report was that there is a broad-based interest among the surveyed pension funds to finance the green transition through new and innovative projects. It found that 84% of funds intend to invest in renewable industries and 58% are also planning to invest in transitioning fossil fuel and/or emissions-intensive industries.
However, OMFIF’s research found that the biggest barrier to ESG investment is data, with 75% of pension funds reporting that insufficient data or lack of information is a hindrance to ESG adoption.
Other trends found in the report include, funds moving away from domestic assets to more foreign investments, funds decreasing their exposure to liquid assets and some funds reducing their investments in renminbi.
Clive Horwood, OMFIF’s managing editor and deputy CEO, said: “Our survey reveals many important findings. For the first time in recent memory, allocations to the renminbi are set to fall.
“Despite market uncertainty, many asset owners will continue their move away from domestic assets to more foreign investments – often with the help of external managers. Global public funds remain committed to investing in more sustainable ways, with a particular focus on renewables, transition finance and green bonds.”
