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Sustainable investing requires self-reflection

In the past, we have seen how the public debate on sustainability and the financial sector has hardened. Supervisors are carrying out raids and former top executives of large institutions are sounding the alarm. Opponents of responsible investing eagerly respond to this, for example by labeling ESG as purely political and irrelevant.

The answer of advocates of a more sustainable financial sector is to celebrate all the achieved steps in a big and loud way. Incidentally, without widespread acknowledgement of the fact that these steps are not always fulfilled.

For example, according to a report by the OECD, the 100 billion dollars a year that rich countries promised poor countries to arm themselves against the consequences of climate change, invariably failed to materialise. Yet we continue at the same pace, so as not to be called to a halt by opponents.

The need for nuance and dialogue

That rambling also means that there is little or no room for reflection, nuance and talking to each other about where things are not yet going the way we would like. However, as a sector, we know that responsible investment and sustainability are not rigid concepts, but are constantly evolving.

This makes it a challenging and lively field, which we shouldn’t beat to death by stiffening and firing on the defensive. Sustainability is not a battle, it is a transition about which we have to keep talking due to the rapid developments and where several visions can coexist. You can undoubtedly take a firm stand on this. But we cannot ignore nuance and dialogue.

An example from practice

A good example of the above is the interpretation of the annual benchmark Responsible Investment by Pension Funds in the Netherlands of the VBDO. Put simply, the benchmark examines what pension funds intend to do with responsible investment and to what extent this actually happens.

We also look at whether and how responsible investment is embedded in the governance structure and to what extent policy and results are reported. The benchmark has a 100% response rate. In other words: all pension funds are freely and willingly participating in the research. Due to the set-up described, the survey provides a balanced picture of what is happening in the field of responsible investment among pension funds.

Balanced but rigid

A benchmark is intended to provide insight into how you perform compared to your peers and where there is room for improvement. The first goal is easy because scores are linked to the results. It does mean that the type of questions determines what can and cannot be included in the assessment and that it is ultimately quite rigid: everything that falls outside the questions is not included. A benchmark, therefore, provides a balanced and balanced picture, but not a complete picture.

In addition, responsible investing is never ‘finished’. If a pension fund were to achieve the maximum score, it would not be the most sustainable pension fund ever, but simply the pension fund that best meets the requirements set in our questionnaire that year. In addition, it is up to the pension funds to use the information obtained from the benchmark and the report to reflect and discuss their own approach to responsible investment, both internally and externally.

An open conversation

We must come to terms with the fact that we don’t know everything. This offers opportunities for development that require an open and nuanced discussion. A requirement here is self-reflection and space for philosophizing. Rigid instruments such as the VBDO benchmarks can help with this.

So let the forthcoming benchmark report not only be an evaluation of points but use it to reflect internally as an organization and to enter into dialogue within the sector and with parties outside it. This is the only way to start the conversation that is necessary to achieve sustainable development of the financial sector.

Source: This article was translated from Dutch and was originally published by Financial Investigator.

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“Responsible investing is never 'finished'”