THE PENSION FUND COALITION FOR INCLUSIVE CAPITALISM

Making Capital Work for the Long-term

The Pension Fund Coalition for Inclusive Capitalism, an initiative of the Coalition for Inclusive Capitalism and the Ira M. Millstein Center for Global Markets and Corporate Ownership at Columbia Law School, convened some of the world’s largest pension fund managers, as well as legal and other advisors, in an effort to empower pension fund managers committed to investing in sustainable businesses by directing their asset managers to invest in line with their long-term priorities.

As a diverse set of asset owners focused on the long-term, public pension funds hold powerful levers for global change. Across markets and portfolios, they invest more than $23 trillion globally for the long-term interests of retirees. Yet, many pension funds lack legal tools to direct how—or whether— their asset managers consider environmental, social, and governance (ESG) criteria.

To address this gap, the Pension Fund Coalition for Inclusive Capitalism developed model contract language establishing minimum ESG guidelines for use in investment agreements, with asset managers as well as private equity side letters and LP agreements. Flexible across a range of scenarios, approaches and public or private markets, the model language offers portfolio and legal teams new ESG tools for:

MODEL MANDATES

Individualized approaches
Standardized approaches
Criteria-based approaches
ESG-related commitments

VOTING RIGHTS

Proxy language
Investor rights
Manager guidelines
Record disclosure

REPORTING REQUIREMENTS

Regular requirements
Interim updates
Diligence and research
Adverse developments

ESG FACTORS AND CRITERIA

ESG factors
Sample language
Engagement guidelines
Investment restrictions

Model Investment Language

The Pension Fund Coalition for Inclusive Capitalism has developed customizable contract language establishing minimum ESG guidelines within broader agreements between asset owners and active asset managers in public equities.

The model ESG contract language is designed for ease of use and can be tailored to asset owners’ ESG and long-term investment priorities.* Included with its sample provisions are introductory guidance and notes for portfolio and legal teams interested in determining ESG objectives and tailoring them within broader investment agreements.

We invite asset owners to download these tools and make use of them as a guide for structuring ESG provisions in investment agreements.

*The model language is general in nature and should not be considered or relied on as legal advice.

The Pension Fund Coalition for Inclusive Capitalism has developed customizable language establishing minimum ESG guidelines between asset owners and active asset managers in broader private investment fund limited partnership agreements or side letters.

The model ESG language is designed for ease of use and can be tailored to asset owners’ ESG and long-term investment priorities.* Included with its sample provisions are introductory guidance and notes for portfolio and legal teams interested in determining ESG objectives and tailoring them within broader investment agreements.

We invite asset owners to download these tools and make use of them as a guide for structuring ESG provisions in investment agreements.

*The model language is general in nature and should not be considered or relied on as legal advice.

ESG Investor Resources

The following external resources for asset owners in asset manager relationships complement the ESG model contract language and may provide additional background for portfolio and legal teams.

Institutional Investment Mandates: Long-Term Model

Example provisions and KPIs for aligning mandates with long-term models, fee structures and reporting

Institutional Investment Mandates: Anchors for Long-Term Performance

Research collaboration on institutional investment mandates as anchors for long-term performance

ICGN–GISD Alliance Model Mandate Guidance

Model contract terms to align Sustainable Development Investment (SDI) interests and the SDGs between asset owners and fund managers

Sector-Specific SDG-related Corporate Reporting Metrics

SDG-related corporate reporting metrics to facilitate investors aligning financing with sustainable development

Private Equity ESG Roadmap & Resources

ESG roadmap and resources for LPs within the private equity industry

ESG Data Convergence Project

Private equity industry collaboration to standardize ESG metrics and reporting

ESG Toolkit for Pension Fund Chairs and Trustees

Pension resources for embedding ESG considerations into investment decisions

Global ESG Standards for Investment Products

Consultation of voluntary ESG disclosure standards for investment products

Co-Chairs and Conveners

Hiro Mizuno

UN Special Envoy on Innovative Finance and former Chief Investment Officer, Japan Government Pension Investment Fund

“Most public pension funds, have little control over how – or whether – their assets are invested with ESG guidelines. The model language addresses this gap by ensuring long-term value creation standards are upheld.”

Theresa Whitmarsh

Co-Chair, Ira M. Millstein Center for Global Markets and Corporate Ownership at Columbia Law School; Chair, FCLTGlobal; and former CEO, Washington State Investment Board

"With these tools, pension funds will have more ways to ensure that their capital is being deployed by asset managers in strategies that fit with a preferred approach to sustainability and ESG integration."

Lynn Forester de Rothschild

Founder and CEO, Council for Inclusive Capitalism and Chief Executive Officer, E.L. Rothschild LLC

“The most powerful lever of investment change lies with asset owners, who can steer investment toward sustainable business and continue to provide value for their beneficiaries.”

Jim Millstein

Co-Chair, Guggenheim Securities and Advisory Board Member, Ira M. Millstein Center for Global Markets and Corporate Ownership at Columbia Law School

Participants

The model language reflects the work of Pension Fund Coalition for Inclusive Capitalism partners, the Coalition for Inclusive Capitalism and Ira M. Millstein Center for Global Markets and Corporate Ownership at Columbia Law School, which benefited from the collaboration of representatives from various pension funds and organizations, including:

Pension Funds and Fiduciaries

British Columbia Investment Management Corporation (BCI)
Office of the Illinois State Treasurer
Public Sector Pension Investment Board
Stichting Pensioenfonds Zorg en Welzijn (PGGM)
University of California Investments
Washington State Investment Board

Organizations

Accounting for Sustainability
CFA Institute
Global Investors for Sustainable Development Alliance
FCLTGlobal
International Corporate Governance Network (ICGN)
Institutional Limited Partners Association (ILPA)