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Pension funds are being urged by an investor network not to become fixated on high returns targets or track records when considering impact fund commitments. Impact investing “is about sustainable returns. This is not about chasing the highest returns. It is about [whether] those returns are achievable over a long time horizon,” said Charlotte O’Leary, chief executive of Pensions For Purpose, a sustainability network and advisor for institutional investors.

Reva Raghavan, a partner at law firm Kirkland & Ellis, joining O’Leary on a panel at New Private MarketsImpact Investor Global Summit last week, agreed: “Market-rate returns come in waves.” The ambition to achieve “market rate returns, as exactly the same number year on year, has got to change. Impact is not one-dimensional, and neither are returns.”

‘Mad view’ of growth

There is a “mad view” that economies should grow exponentially and asset valuations should continue to rise over time, said O’Leary. “You cannot just continue to grow on a planet that has finite resources.” By ascribing value to social and environmental resources that have previously been taken for granted, “We can’t expect to deliver the same returns going forward.”

Pensions for Purpose is a membership organisation with a mission to promote the concept of impact investment among pension funds and their advisers.

Track record is also not a reliable indicator of how a fund will perform over its life, O’Leary continued. “Track record is based on what we’ve done traditionally in business, which clearly hasn’t worked.” The climate crisis and other global sustainability challenges “require us to adapt business practice. You have to operate a different way,” O’Leary added.

Pensions need not require all impact funds to meet their overall, portfolio-level risk and return thresholds, O’Leary added: “You can blend risk/return profiles. We often see pension funds get an actuarial risk and return budget, and they think they need a single manager and a single return profile [for their entire impact portfolio].” But O’Leary urged pensions to evaluate their impact portfolios holistically: “They could have different individual managers with different return profiles.”

Pensions should look for “innovative business models and innovative structures for funds”, said O’Leary, including “incentive alignment – how [is the GP] putting skin into the game?”


Pension funds have a fiduciary duty to deploy capital towards making society more sustainable, O’Leary argued.

“Our economy is based on our environment and our society.” If these are wiped out by unsustainable practices, there will be “no economy, and therefore it doesn’t matter whether you have an income at retirement because you won’t have anything to spend it on.”

Moreover, pension fund trustees have a responsibility to “all of your members – your oldest members and your youngest members.” Younger members are likely to place more importance on sustainability, and trustees must factor this into their decision-making process, O’Leary said.

On the question of fiduciary duty, Raghavan, said: “From a regulatory perspective, there is certainly a huge recognition that non-financial considerations should form an important part of your investment decisions.”