Manulife Investment Management says retirement plans sponsors and sustainable investors have a lot in common – a focus on long-term time horizons being the most evident.
“We suggest ways for retirement plan sponsors – whether in the defined benefit (DB) or defined contribution (DC) space – to align their investments with increasingly common sustainable climate goals,” the investment firm writes in a recent note, entitled How retirement investments align with long-term environmental goals.
“Climate-related risk and opportunities are present in virtually all asset classes, but real assets – including infrastructure, real estate, timberland and farmland – may offer relatively stronger profiles of climate resilience to investors,” they add.
The report discusses greenhouse gas (GHG) emissions and targets and the climate change-related risks and opportunities in retirement asset allocation.
“To achieve their GHG reduction targets, countries are setting “net zero by 2050” goals and developing low-carbon policies and incentives to accelerate their progress. Companies’ products, services, and operations can be affected by these policies, and so companies, in turn, are setting their own net zero targets. By focusing on these company-level objectives, investors—and their plan sponsor partners—have the opportunity to assess how their portfolios can align capital with net zero targets,” they write before defining net zero and measuring the relative preparedness and resilience of different asset classes.
They say real assets, including utilities and transportation and energy infrastructure are ahead of other asset classes in measuring emissions. “Infrastructure is leading the pack in terms of setting net zero targets,” they add.
For investment managers, the firm recommends investing in climate leaders, in low-carbon transition companies, in environmental, social and governance (ESG) bonds and recommends engaging with or avoiding high GHG emitters.
“Retirement plan administrators have no small stake in understanding sustainability imperatives and related investment strategies. Without this capacity, we think asset owners and their beneficiaries could be subject to significant downside risks in their long-term portfolio outcomes.”