In a lengthy expose, Reuters reports that the World Bank indirectly invests part of its $18.8 billion staff pension fund in companies in industries such as coal and tobacco, holdings that clash with the development institution’s own calls for ethical and low-carbon investing.
The report raises a serious question: Why does the World Bank still have a pension?
But it also illustrates the difficulty of sometimes living up to its own socially responsible investing standards, and how certain ESG screens are proving ineffective.
In an internal post to staff seen by Reuters, the World Bank’s treasurer said around 40 percent of the fund’s equity holdings are actively or passively invested against equity index funds, which include companies in industries associated with environmental and health problems.
“Two World Bank sources, who asked not to be identified, showed Reuters discussions between staff and managers on an internal site and a research note produced by employees,” the news service reports. “The note expressed concern about the pension and gave details of the holdings, questioning why the bank does not use socially responsible alternatives.”
It adds that in its own lending practices across the developing world, the bank refuses to invest in tobacco production and has banned financial support for the construction of coal-fired electricity except for the poorest countries that lack other options.
The Washington-based bank’s pension fund, details of whose holdings have not previously been reported, was ranked a “laggard” in transparency and managing climate risks in a report released last week by the Asset Owners Disclosure Project, which pushes asset owners to address climate change risks. It ranked lower than the pension funds of companies including British Coal and the state oil fund of Azerbaijan.
“It’s very difficult for the bank to take a position where it is promoting sustainable growth and not managing the risks in their large portfolio – or telling anyone about it,” said Julian Poulter, chief executive of the initiative, told Reuters.
The bank has called on others to divest from fossil fuel companies and its president, Jim Yong Kim, has asked long-term investors “to recognize their fiduciary responsibility” to reveal their exposure to climate change-related impacts.
Participation in the pension fund – a combination of defined benefit and 401k-style savings – is mandatory for World Bank employees, the news service notes. It has about 15,000 current employees and around 10,000 retired beneficiaries.
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With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
