Integration of ESG Issues in Investments Practices of Pension Funds

Abstract

Pension funds are major asset owners in financial markets and global investors with long-term investment horizons and the need for stable and predictable cash flows. On the other hand, these institutional investors are crucial for maintaining social security, so their performance and investment structure should take into account their responsibility for the environment and society in general. Therefore, they have an extraordinary potential and special responsibility to take measures against sustainability risks and to green the economy, but also to improve social and managerial aspects when adjusting their investment portfolios. Pension funds among institutional investors are expected to make an important contribution to the transition to a sustainable economy. The objective of this paper is to highlight the importance of integrating environmental, social and governance (ESG) aspects into the structure of pension funds' investment portfolios, taking into account related regulatory measures and anticipating transition risks. Investment strategies refer to exclusion procedures for ineligible investments, but also to sophisticated screening techniques and verification of compliance with specific sustainability criteria to contribute to the transition to a greener and more sustainable economy.