Corporate governance key to pension’s growth

The concept of sustainable investment is becoming more essential daily as an effective means of achieving desired impact on the global environment.

The sustainable investment approach considers Environmental, Social and Governance (ESG) factors, as well as the long-term health and stability of the economy as a whole.

These were the assertions of the Pioneer Director-General, the National Pension Commission (PenCom), Muhammad Ahmad, at the conference of Directors of Licensed Pension Operators in Nigeria, in Lagos.

The event, with the theme: “Consolidating the Nigerian Pension Industry through Sustainable Investment and Excellence in Corporate Governance Practices, attracted sector operators and stakeholders.

According to him, sustainable investment recognises that generation of long-term returns is dependent on stable, well-functioning and well-governed social, environmental and economic systems.

It also allows for the inherent social, environmental and economic risks in every investment to be correctly determined and priced.

He however, noted that the Nigerian pension industry is yet to develop a policy document on ESG principles, which would have been mainstreamed in the investment regulations to guide operators in deploying the pension assets in environmental-friendly assets.

Ahmad stressed that a lot was yet to be done in the integration of ESG factors into investment decisions of Nigerian pension funds, particularly at policy level and capacity building.

The expert stated that notwithstanding the challenge, the pension industry appears to have embraced the global trend on sustainable investments through the window of FGN securities allowed in the current regulations.

He pointed out that the investments by the pension industry in the Sovereign Green Bond, which was in excess of 70 per cent, amounting to N7.19 billion, shows the pension industry’s acceptance of sustainable investments as it ventures into the future.

According to him, efforts have been made in institutionalising ESG Principles in Nigeria, under the auspices of the Financial Services Regulation Coordinating Committee (FSRCC).

He noted that the Central Bank of Nigeria has developed a Framework for banks and an internal Framework as a corporate, while the Securities and Exchange Commission has completed work on a draft ESG Framework that is yet to be approved.

“One of the barriers of Sustainable Investment is the often struggle to achieve a paradigm shift from traditional investments, by disrupting the entrenched status quo; short-term biases; misconceptions and absence of accountability.

“Other barriers include capacity issues; the challenge of translating goals into investment portfolio; inadequate ESG data, disclosure standards; performance metrics; limited quality opportunities that integrate ESG criteria and structural disincentives,” he said.

Ahmad noted that the importance of corporate governance is, perhaps, the most pertinent ESG element in sustainability and cannot be overemphasised.

A strong corporate governance system of principles, policies and procedures, he said, is necessary to resolve potential conflicts and risks inherent in a company, thus, increasing sustainability within organisations.

He commended PenCom on the measures it instituted to facilitate sound governance in the pension industry, which transcends pension operators and extends to entities in which pension funds are invested.

“The Investment Regulations have stringent prescriptions for entities that are eligible for pension fund investments. For instance, companies that qualify for equity investments by pension funds must maintain high standards of transparency and governance, he said.

Ahmad urged the Pension Fund Managers to adequately take cognisance of sound Corporate Governance practices in their decisions to invest in entities or specialist investment funds, especially as the stake of the pension industry in governing the financial market continue to rise.