10 Oct PUBLIC PENSION CORNER, #16
NEWS:
I. World’s Largest Pension Fund Considers Going All-In on “Impact Investing”
Japan’s $1.8 trillion Government Pension Investment Fund – the largest pension fund in the world – appears to be moving toward an investment model that focuses more heavily on “impact strategies”:
The Government Pension Investment Fund (GPIF) opened the door to impact strategies in March and at least four other Japanese pension funds are updating or revising their investment policies, according to a review of the funds’ investment policies. At the same time, there’s evidence that asset managers pitching for pension mandates are now adjusting their approach to match growing demand for impact strategies.
The ripple effect through Japan’s $5 trillion money management industry is backed by the government, which has identified the strategy as a way to help address some of the country’s real-world challenges. That’s as policymakers in Japan face a rapidly aging society and one which ranked 118th last year in a gender-equality review of 146 countries.
GPIF President Kazuto Uchida has made clear he thinks that an investment approach targeting environmental and social goals “ultimately leads to” economic and capital markets growth.
II. The EC Adopts Climate Reporting Standards for Smaller Companies
The European Commission has adopted a slate of sustainability reporting standards for smaller companies, which have been exempted for various reasons from the EU’s controversial reporting regulations. The new standards are technically “voluntary” to protect smaller firms from the more significant regulatory burden associated with mandatory reporting:
The voluntary standard for SMEs (VSME) was developed by EFRAG, the Commission’s technical advisor on sustainability reporting. It is designed for SMEs that fall outside the scope of the Corporate Sustainability Reporting Directive (CSRD) but face increasing sustainability data requests from their larger business partners.
The Commission is urging large companies and financial institutions to align their sustainability information requests with this voluntary standard wherever possible, to help mitigate compliance burdens for smaller businesses.
The recommendation is an interim measure, introduced ahead of the formal adoption of a delegated act establishing a voluntary reporting framework. The delegated act will form part of the Omnibus I simplification package, which proposes limiting mandatory CSRD reporting to companies with more than 1,000 employees.
COMMENTARY
By Stephen R. Soukup, President and Publisher, The Political Forum
“Prove It!”
When you publish a newsletter on Substack (or an email on any of a handful of marketing platforms) you are given the opportunity to “beta test” headlines/titles for you publications. It’s a chance to try out different things with an eye toward improving your effectiveness at connecting with your audience and expanding your reach. Or, as Substack puts it, this is “a way to boost to open rates and increase engagement….”
This nifty little feature is, in many cases, invaluable. It’s cheap. It’s easy. And it can mean the difference between effective reader engagement and ineptitude, between business success and failure.
Despite their obvious importance, simplicity, and its essential costlessness, such effectiveness assessments are more than many large corporations can be bothered to do to evaluate the changes they make to their business operations in the name of “sustainability.” At least that’s the case according to Forbes Research:
New data from Forbes Research found a steep drop in the number of organizations that consistently prove returns on investments in sustainability — down to 40% from 59% in 2024. That’s according to the 1,100 executives who participated in the latest Forbes Research State of Sustainability Survey between January and March.
Oh.
Well, at least some companies have found a way to assess sustainability ROI, even if they don’t necessarily “measure” it in any tangible sense:
Salesforce has developed an easy way to look at ROI, according to Suzanne DiBianca, the company’s executive vice president and chief impact officer.
“I think, for us, it’s pretty simple. When you save carbon, you save cost,” she explained at the summit in September. “The more we can save on air travel, the more we can save on operating energy costs. It all comes down at the same time.”
Not to repeat myself…but, oh.
On the one hand, it makes sense that cutting down on air travel could be cost-effective for a company. I don’t know that that’s the case in this instance – largely because I haven’t seen Salesforce’s analysis of the tradeoffs between in-person sales and customer service and remote operation of those same critical business functions. Of course, I get the impression Salesforce didn’t/doesn’t do those analyses anyway, so…what’s the point?
On the other hand, if travel restrictions benefit the company and its shareholders, wouldn’t its executives want the shareholders to know this? And wouldn’t they categorize those savings in other ways, classifying them with more traditional, pecuniary business labels – like “employee cost savings” or “travel expense investments” or something like that? If they were real company-benefitting savings, in other words, why would they try to pass them off as something else, something as ethereal and non-traditional as “sustainability” practices?
Earlier this week, Microsoft announced that it is abandoning plans to build a data center Caledonia, Wisconsin, after its proposal met with fierce opposition by local residents and elected officials who are unhappy about the increase in local electricity costs that purportedly accompany data centers. This follows a similar decision by Google three weeks ago to cancel plans to build a nearly 500-acre data center in Franklin Township, Indiana. Again, local opposition based on worries about the costs of electricity was the primary problem. Indeed, media reports suggest that the local county council had already indicated that it intended to deny Google’s application.
There are, I think, a handful of things worth noting about the problems Microsoft and Google have had and other companies are likely to have with the construction of data centers going forward. First, inflation in residential electricity rates is a real and serious issue, but it is driven far more by artificial restriction of supply (caused by climate pledges and renewable mandates) than by data centers. That’s just a fact. Second, both Microsoft and Google (or its parent, Alphabet) have made public pledges to be carbon-neutral or carbon-negative by 2030. Both are signatories of The Climate Pledge and are members of various other environmental, sustainability, and climate-focused organizations. In other words, both are responsible for their own plights, albeit for reasons other than most people assume. While the public appears to believe that it is sticking it to Microsoft and Google for their energy gluttony, it is, in reality, sticking it to the companies for their corporate sustainability practices – which they almost certainly enacted without doing much by way of measuring likely ROI on their decisions.
Microsoft, Google, Salesforce, FedEx, and countless others have enacted climate/sustainability practices on the assumption that they are cost-free and, even if they’re not, what difference does it make anyway? Microsoft and Google are finding out their hard way that their assumption was mistaken, that it makes a big difference, and that there are costs associated with making promises and enacting business practices without considering all possible contingencies and assessing possible downsides.
The directors and executives at these companies – as well as those at Salesforce and elsewhere – should likewise learn the hard way that there are consequences for doing things that sound good on paper (or make them feel warm and fuzzy in their souls) but that haven’t been beta-tested or analyzed in any significant way.
In order for that to happen, of course, shareholders must be willing to vote their shares in ways that send a message to management (rather than simply reflexively voting with management) and to engage corporations so that they understand that this type of frivolousness amounts to a radical violation of their duties as agents of the corporations’ true owners.
The era of mindless acquiescence to “sustainability” dogma and associated pressure should, by all rights, be over. That it’s not suggests that shareholders still have much work to do to compel corporate managers to do what is truly good and right.
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