Pension Funds, Sovereign-wealth Funds 

and Intergenerational Justice

 Alexander Cappelen (NHH) and Runa Urheim (NBIM) September 27, 2012

Abstract: 

Pension funds and sovereign-wealth funds own a large and increasing fraction of the shares in publicly traded companies in the OECD area. These funds typically have a very long time horizon on their investments, as well as highly diversified portfolios. These features imply that the interests of these funds on important issues are aligned with the interest of future generations because the long-term return on a highly diversified portfolio will depend on the degree to which the development of the world economy is sustainable. It is, therefore, in the enlightened self-interest of these investors to use their shareholder rights so as to protect the interest of future generations. The paper explores the arguments for a more active corporate governance policy among pension funds and sovereign-wealthfunds and discusses the obstacles to such policies.

Introduction

In this paper, we argue that investment funds that have a very long time horizon and a diversified portfolio can potentially play a significant role in promoting intergenerational justice. Pension funds  are the most important type of such funds, but, typically, sovereign-wealth funds also have the same characteristics. These types of funds represent an increasingly important group of shareholders and we shall argue that the financial interest of these funds is well aligned with the economic interest of future generations. The capital managed by pension funds and sovereign-wealth funds has been rapidly increasing during the last decades. In some countries, like the USA, pension funds alone own a majority of the shares in listed companies. The social and environmental policies pursued by the companies where pension funds are shareholders have a significant impact on the social and environmental development of the world economy. To the extent that owners actually control the companies they own, such investors can thus be a very important force for a more sustainable development if they decide to use their shareholder rights to influence the environmental and social policy of the corporations they own. This paper explores the arguments for a more active corporate governance policy among pension funds and sovereign-wealth funds. It also describes some of the main obstacles to effective shareholder democracy. The main argument in this paper is that these obstacles prevent pension funds and investors with similar interests from using their influence to promote sustainable development.Furthermore, we argue that changes in the corporate governance structure that improve these investors’ability to control the companies they own might promote intergenerational justice

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In this BLOG we will look at pensions and their impact on what are called Public Private Partnerships or P3’s.  IT will also deal with other pension matters, such as Defined Contribution Plans (DC) vs Defined Benefit (DB) PLANS, the weakness in private plans, the need for pension reform in public pensions to have shareholder rights, directorships and ethical investment directives and policies.