Maine’s public pension fund earned double-digit returns in six of the past nine years. Yet the Maine Public Employees Retirement System is still $2.9 billion short of what it needs to afford all future benefits to all retirees.
There is a simple reason why pensions are in such rough shape: The amount owed to retirees is accelerating faster than assets on hand to pay those future obligations. Liabilities of major U.S. public pensions are up 64% since 2007 while assets are up 30%, according to the most recent data from Boston College’s Center for Retirement Research.
What trends are influencing endowment investing in today’s market?
Among larger institutions, college endowments have been at the forefront of SRI and ESG investing…more than one in four colleges engages in some form of SRI. This could take the form of traditional negative screens or restrictions among faith-based organizations, ESG, shareholder activism, or impact investing. Parsing the data by assets, we find nearly 60% of these institutions apply some form of ESG criteria.
The International Organization of Securities Commissions (IOSCO) is this month publishing a statement setting out the importance for issuers of considering the inclusion of environmental, social and governance (ESG) matters when disclosing information material to investors’ decisions.
The statement does not supersede existing laws, regulations, guidance or standards or relevant regulatory or supervisory frameworks in specific jurisdictions, or any IOSCO Principles.
As underlined by IOSCO in its Objectives and Principles of Securities Regulation, securities regulation has three key objectives: protecting investors, ensuring that markets are fair, efficient, and transparent, and reducing systemic risk. IOSCO Principle 16 states that issuers should provide “full, accurate, and timely disclosure of financial results, risk, and other information which is material to investors’ decisions.” With regard to this Principle, IOSCO emphasizes that ESG matters, though sometimes characterized as non-financial, may have a material short-term and long-term impact on the business operations of the issuers as well as on risks and returns for investors and their investment and voting decisions.
II. Developments in the disclosure of ESG information
Disclosure of ESG information in the market has increased in recent years. Examples of ESG matters that issuers are disclosing include environmental factors related to sustainability and climate change, social factors including labor practices and diversity, and general governance- related factors that have a material impact on the issuer’s business.
One-fourth of municipal borrowing is given a single grade, leaving smaller investors with less information
Municipal officials and advisers said fewer ratings help cities trim expenses and save time when they borrow money for everything from school construction to sewer repairs. Bond issuers typically pay rating firms to issue a report. But some analysts said opting for one grade from a single firm puts smaller investors at a disadvantage as less information circulates through the $3.8 trillion municipal market.
Cities and counties across the U.S. don’t have enough assets on hand to pay for all future obligations to their workers, but how deep this deficit looks depends on what those cities expect to earn on their investments. Moody’s and Fitch impose their own calculations of pension liabilities while S&P relies more on government-provided projections.
In partnership with Marquette University and Fund Governance Analytics (FGA), on June 1 we began sending out Governance Portal account activation credentials to over 300 organizations across the United States. Board and staff leadership of public pension systems over the next month have been invited to fill out the FEQ Governance Survey. This is the largest and most comprehensive survey of its kind ever undertaken, and we are excited to see both interest and early participation. For an overview of the topic, see Benefits Magazine article from January.
The 2018 survey closes on July 15. Organizations have up until that time to complete the 37-question survey to receive a free one-page report including their FEQ score along with peer universe benchmarks. The benchmarking information is valuable, not just from this year’s participants, but prior data collection representing 25% of the pension universe by assets, as it points to best practices among organizations. Our goal this year is to expand our data collection to over 50% of the universe.
During our research, we determined that stronger board governance (as measured by the FEQ score) can drive both higher investment returns and lower contribution requirements.
If your organization was not included among the initial group, there is still time for you to participate. Please send your request to firstname.lastname@example.org, and we will add you to the survey group!