Publication Tomorrow’s Value: achieving long-term financial returns

by Luke Robinson _______1st February 2014

Executive Summary

This publication aims to serve as a useful tool for key actors in the financial system, with a particular focus on pension fund trustees, by providing the argument and the confidence for the role they can play in creating value that best generates returns for beneficiaries and that is therefore fit for purpose.

Tomorrow’s Value: Achieving long-term financial was formally launched at an event with pension fund trustees at PwC on the 10th of June. You can find a PDF version of the publication below.

The current understanding of value is no longer fit for purpose. Financial factors were sufficient in the past to ensure the system worked but new pressures and general global volatility signify that it is now necessary to consider how to create long-term financial value. From a strategic risk perspective, it becomes paramount to take all factors into consideration when making investment decisions as a pension fund trustee. However, the current paradigm remains: value equals money and the sustainability/ responsible investment framework sits in a separate universe.

This view of value is stuck and entrenched by a complex investment chain, marred by systemic behavioural pressures that affect all key players in the system, making the system perform and loop in a vicious cycle. This reality makes it difficult to go beyond just the short-term and to allow for some long-term investment decisions.

Through the lens of the pension fund trustee, these pressures are further reinforced by a lack of understanding of trust law principles and the fiduciary duty, a narrow interpretation of the case law, narrow advice received and therefore an overall fear of incurring liability by making more long-term investment choices.

We believe the current system is unfit for purpose and places a heavy burden, and indeed incapacitates, pension fund trustees and others from the role they can and need to play in order to ensure that the system endures. This is also applicable to Direct Contributions schemes.

We also argue that we need to go beyond financial measures of success, and beyond ‘ESG’, ‘RI’ ‘SRI’ and so on, to embrace a view of value that is integrated, long-term and sustainable, where performance is measured using non-financial indicators – that ultimately seeks to create sustainable financial value; a view that recognises that short-term economic data are at times necessary but is no longer sufficient. In order for investment choices to be long-term and sustainable, decisions need to take into account financial factors as well as environmental, social and governance factors.