Some interesting points relevant to this blog’s last posting on the Environment Agency’s pension fund holdings arose in a discussion on barbel.co.uk. One contributor pointed out that green or sustainability bonds are issued by government and companies for investment in climate and environmental projects. All or most of the water utilities have issued green bonds and these have proved very popular with investors — they help with funds’ ESG (Environmental, Social and Governance) credentials. Cynically we might think this is a way to raise cheap funds to do things that look good while continuing to pay healthy dividends and big salaries to the execs. Well, that’s true, but at least it means or should mean that the water companies are doing something to meet their environmental obligations.
As far as I can make out, these green bonds are labelled as such, so it should be clear when a fund holds them. The bonds held by the EA pension fund do not appear to be ‘green’. So it doesn’t have that justification. But as I pointed out in my previous post, bonds are important to pension funds for liability matching. Similarly, shares in utilities are popular for the large and regular dividends paid (United Utilities is a ‘dividend aristocrat’ — it pays a dividend that grows each year). Pension funds should be managed independently of the parent company to avoid any financial shenanigans. In the case of the EA, this means it cannot ask the fund to expunge investments in water utilities, despite the bad look.
The blunt truth is that pension funds are expected to make a good return within their risk profiles, i.e. make money without taking big chances. If you look through the investments held in your pension you might also find some questionable companies. Private companies like water utilities have one principal goal: to maximise return to shareholders. The environment comes second unless regulators pull them up, as with Thames Water which has stumped up several big fines in recent years. The graph below shows how much regulation is needed.
The two contenders for the Conservative leadership are not saying encouraging things about the environment despite the recent extreme weather emphasising yet again what a bad state we’re in. So write to your MP, protest all you can while doing your bit. Most of us are not doing enough. We carry on consuming and driving our cars. Many still sling their litter about and that includes anglers. If we don’t stand against pollution of rivers and the wider environment you can be sure that no one else will.