How Sovereign Wealth and Pension Funds Have Taken Steps to Improve Their ESG Scores

CPP Investments, PGGM, CDPG, Temasek, Future Fund, BCI, New Zealand Super, and the ISIF are among the best.

Illustration by II

Illustration by II

Sovereign wealth funds and their public pension peers have made inroads when it comes to improving ESG compliance, according to new research.

The Global Sovereign Wealth Fund’s annual Governance, Sustainability, and Resilience Scoreboard, released on Friday, showed a marked improvement among some of the world’s largest asset owners year-over-year. “It serves as a reality check for asset owners to be measured and to improve their practices, and it allows other market participants to look at their partners objectively,” according to the report. “It is only with a comprehensive and regular analysis that we will be able to see the virtues — and vices — of the world’s major state-owned investors.”

Of the funds scored, top performers included the Canada Pension Plan, Dutch fund PGGM, Caisse de Dépôt et Placement du Québec (CDPQ), Singapore’s Temasek, Australia’s Future Fund, Canada’s British Columbia Investment Management Corporation (BCI), New Zealand’s Super Fund, and the Ireland Strategic Investment Fund. Each received a 96 percent score.

“There is a positive correlation between high GSR scores and financial returns, especially with the governance aspect,” Diego Lopez, managing director at Global SWF, said in an e-mail statement.

In addition to merging teams to create a “sustainable energies” group, CPP Investments, the largest plan to receive the high score, appointed its first chief sustainability officer in 2021, the report showed. This, along with co-investing strategies and a focus on crisis management governance, is what helped the organization become a top scorer.

The Scoreboard, set up in 2020, includes 25 questions that can be answered with yes or no questions. These criteria are equally weighted and answered using publicly available information. This year, the Global SWF also met with allocators after creating its preliminary scores.

The analysis, which covered 100 sovereign wealth funds and 100 public pension funds globally, is broken up into three sections. The governance section covers deposit and withdrawal rules, external manager reputation, investment strategy, returns, and internal and external governance, among other criteria. Within the sustainability category, ten elements were scored, including policies, mission statements, and alignment with the United Nations’ Sustainable Development Goals. The resilience category takes into account risk management policies, funded status disclosures, and other criteria.

The Global SWF excluded newcomers in order to compare 2021’s scores with this year’s results, and it found that sovereign wealth funds had improved their scores by six percent, while public pension funds had improved by 5 percent. “Sovereign Investors are putting a lot of effort [into] becoming more transparent and more sustainable,” Lopez said in a statement.

When funds were grouped by country, the United States ranked 24th, with a GSR score of 65 percent. The United Kingdom came in at No. 19, with a score of 71 percent.

Funds in the Middle East and North Africa, though typically low-scoring, have improved “considerably” since the 2021 report. Qatar’s QIA, for instance, improved its score by 32 percent, helped by more transparency online and the hiring of new, ESG-focused employees. Angola’s FSDEA, meanwhile, boosted its score by 40 percent. According to the report, the sovereign wealth fund is “still recovering” from a reputational crisis but has since installed new leadership as well as policies for external managers.