World Bank Pension Fund Invests Against Its Own Ethical Principles, Claims Report

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The World Bank for years has strongly advocated for socially responsible investing and has publicly crusaded against investing in the coal and tobacco industries.

But the Bank’s pension fund indirectly invests in those very same industries, according to a report from Reuters, and has been opaque about disclosing those investments.

From Reuters:

The World Bank indirectly invests part of its $18.8 billion staff pension fund in companies in industries such as coal and tobacco, holdings that clash with the development institution’s own calls for ethical and low-carbon investing.

[…]

Two World Bank sources, who asked not to be identified, showed Reuters discussions between staff and managers on an internal site and a research note produced by employees. The note expressed concern about the pension and gave details of the holdings, questioning why the bank does not use socially responsible alternatives.

While the pension fund is required to prioritize financial gains for staff, investment analysts said it could be directed into pre-screened or tailored funds that exclude companies that fail to follow sound environmental, social and governance (ESG) principles.

[…]

Some of the pension’s holdings are invested in the Russell 3000 index, which tracks 3,000 companies including coal producers Peabody Coal and Arch Coal and tobacco giant Philip Morris, according to the employees’ research note.

Others are invested in funds tied to Morgan Stanley’s MSCI index, which includes major fossil fuel companies like ExxonMobil, according to that note.

Some Bank officials have responded in defense of the pension fund’s investment practices. From Reuters:

The World Bank has a responsibility to manage the money “in the best interest of plan beneficiaries,” the bank said in a statement to Reuters.

The bank said it does not comment on specific pension investments, adding that it opts for a “principled yet pragmatic approach” within the fund’s overall requirements that considers ESG risks and opportunities “where material and relevant.”

That is guided by federal law that requires a plan’s investment policy to have the “exclusive purpose” of providing benefits to participants, though pension providers have flexibility on which investment principles to pursue.

[…]

Kenneth Lay, the vice president of the World Bank alumni group – the 1818 Society – said the fund should focus on maximizing returns.

While there is some evidence ESG investment can improve “risk adjusted performance,” he said, “there is also extensive literature reaching the opposite conclusion.”

The Bank’s pension fund argues that it has a fiduciary duty to maximize returns – and thus, retirement savings – for its members.

The issue with divestment is that it often runs counter to that goal, even if the divestor’s sentiment is in the right place.

 

Photo by  Horia Varlan via Flickr CC License

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