How UM economists nudged a pension fund into making more sustainable investment decisions

How UM economists nudged a pension fund into making more sustainable investment decisions

On the societal impact of UM research

25-10-2023 · Interview

In today’s world, the societal impact of research findings seems more important than getting published in an academic journal like Nature or The Lancet. What impact has research conducted at UM had in recent years? This week: how UM economists nudged a pension fund into making more sustainable investment decisions.

“Do you know who your pension provider is?” asks Rob Bauer, smiling when the reporter can’t answer the question right away. “And do you know where your pension contributions go?” He smiles again.

His point is clear. Anyone who works in the Netherlands automatically contributes to a pension fund. But how many people are aware that they pay roughly a fifth of their gross salary into their pension? And how many know where and how that money is invested, or if it’s invested sustainably?

Common sense

Bauer, professor of Institutional Investors at the School of Business and Economics, is interested in sustainable investing. This may sound like common sense today, “but years ago, especially in the field of finance, people would chuckle when I brought up the topic”. A lot has changed since then. “Institutional investors like pension funds started taking sustainable investing more seriously after the 2009 Climate Change Conference in Copenhagen. They began making more ethical decisions, like avoiding investments in the tobacco industry.”

But until recently, he explains, pension fund participants had little to no say in these decisions. And while there have been studies on participants’ preferences, they tended not to look at sustainable investing or were methodologically unsound. “In 2018, Dutch pension funds agreed to start asking for participants’ views on responsible investing”, says Bauer. “My then colleagues Tobias Ruof and Paul Smeets and I put our heads together to come up with a way to go about this. Measuring people’s true preferences is not an easy task.”

The test of scientific scrutiny

The three researchers developed a questionnaire and found a pension fund willing to participate: Pensioenfonds Detailhandel, one of the ten largest pension funds in the Netherlands. Bauer has been an independent advisor on its investment committee since 2009, and the fund is affiliated with his department. “We were able to conduct this study because they already knew and trusted me”, he says. “That said, it was an independent study that can stand the test of scientific scrutiny. It was published in The Review of Financial Studies, a reputable academic journal.”

A binding referendum

The fund already made investment decisions with three of the seventeen UN sustainable development goals in mind: ‘Decent Work and Economic Growth’, ‘Climate Action’ and ‘Peace, Justice and Strong Institutions’. The study asked whether the fund should add a fourth goal, ‘Responsible Consumption and Production’. It also asked whether the fund should increase its engagement to improve the sustainability policies of the companies it invests in. “The board committed in advance to integrating the outcome of the study into their investment decision-making. As far as I’m aware, Pensioenfonds Detailhandel was the first pension fund in the world to hold a binding referendum on part of its sustainable investment policy among its participants.”

The outcome of the referendum was clear: 68 per cent of participants voted for a more sustainable investment policy, with only 10 per cent opposing it. Moreover, 58 per cent was still in favour of more sustainable investing even if this would result in lower financial returns. “We found a close relationship between participants’ support for more sustainable investments and their social and political preferences”, says Bauer. “And people turned out to be quite willing to put their money where their mouth is.”


As a result of the study, the fund engaged more companies in dialogue about sustainability. In 2019, they had 568 sustainability discussions – a 44 per cent increase compared to 2018, the year when the referendum was held. “And the number has remained the same since”, says Bauer. What about the effect of the effect, though? In other words, did all these talks actually yield results? “We didn’t specifically examine that”, says Bauer, “but other research has shown that this kind of engagement brings about change at one in five companies. The fund is currently exploring whether it would be more effective overall to engage a smaller number of companies in more in-depth discussions.”

More weight

Pensioenfonds Detailhandel also actively implemented another, non-binding outcome of the study. Three-quarters of participants were in favour of investing more in companies that perform well on the four sustainable development goals mentioned above. These companies were subsequently given more weight in the fund’s investment index, although Bauer notes that “the board needs to ask itself whether this was enough”.

Finally, the UM economists noticed that their study had a side effect. “Ten other pension funds asked us to conduct similar studies for them. We didn’t have time for that, but we did evaluate the participant surveys of three of these funds based on our experiences. That’s also real-world impact, as funds all too often still use a standard survey of subpar quality. Our feedback has genuinely made a difference.”

Photo: Ellen Oosterhof

Categories: news_top, Science
Tags: Rob Bauer,Pension funds,Sustainable investment,SBE,instagram

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