Pension plans' sustainable identity as a catalyst for environmental and social investing

Abstract

Regulators and financial investors require environmental and related social issues to be increasingly integrated into pension plans' investment decisions. This paper aims to verify the role that internal pressures play in the boosting of pension schemes' financial portfolios with respect to a more sustainable orientation. This study specifically aims at verifying whether certain of the sustainability-oriented governance practices that pension plans adopted (their sustainable identity), could act as enablers of their ESG investment strategies. We analyze a highly representative sample of Italian pension plans comprising a confidential dataset collected via questionnaires submitted in 2022 and 2023.

This study's main results highlight sustainable identity's relevance as a driver of pension plans' environmental and social choices when applied to financial portfolios. Specifically, establishing an ESG committee on the board, or assigning specific responsibilities concerning ESG issues to board members, correlates significantly with the sustainability of pension plans' investment choices. Likewise, when incorporating ESG criteria into investment decisions, the proportion of the investment portfolios selected on the basis of the ESG criteria and the kind of sustainability strategies applied to the financial assets, demonstrate a positive association with other ESG-related governance structures. The latter include the presence of incentive systems grounded in ESG objectives, establishing an external body with specialized ESG expertise (e.g., an ethics committee), or creating a sustainability function (e.g., a sustainability manager reporting directly to the board).