Haynes makes a case to pension funds managers to invest in green bond market

The man who leads the state entity responsible for promoting the country’s financial stability has proposed a new system of investment to help transform an under pressure pension plan sector.

Drawing on statistics that paint a grave future for an aging population and potentially declining workforce, Governor of the Central Bank of Barbados Cleviston Haynes recommended on Tuesday that local pension plan managers turn to investing some of the available funds in green bonds.

“Green bonds raise funds for new and existing projects that deliver environmental benefits, and a more sustainable economy. ‘Green’ can include renewable energy, sustainable resource use, conservation, and adaptation to climate change,” Haynes told the Eckler Annual Pension Investment Conference under the theme Pension Funds and Economic Recovery.

He said while the green bond market was “thin” at the moment, these bonds would become more common in the future.

“Investing in green bonds would offer attractive returns on a risk-adjusted basis. Such an investment by defined benefit schemes would result in a stable, sustainable and long-term approach which can provide more certainty on the funds invested and more predictability for trustees to plan their scheme’s investment strategy and cash flow,” the Central Bank Governor stated.

He said that for defined contribution pension schemes, ‘green bonds’  can strengthen trustee fulfilment of their fiduciary duty by offering members access to a wider choice of more sustainable investment funds aligned with employee values.

The Central Bank Governor told the conference that maintaining financial stability requires a stable economic environment that facilitates growth and job creation and encourages new investments.

“The pensions sector has a pivotal role to play by transforming savings into long-term investments, facilitating diversification and creating opportunities for enfranchisement. As fund managers, you need to consider how you can contribute to this process,” the senior economist declared.

In an overview of the local pension sector, Haynes said the broad population is enrolled in the contributory public pension system managed by the National Insurance, currently with an asset base approaching $4 billion.

He noted that there is also an unfunded system for public servants financed out of the Consolidated Fund, as well as private pension funds which are regulated by the Financial Services Commission.

“At December 2020, private pension funds registered reported assets of $2.4 billion or approximately 9.5 per cent of all financial sector assets. This represented a modest decline from a year earlier, as rising pension payments and lower contributions resulting from the depressed economic conditions slowed the growth of the sector,” Haynes pointed out.

He also said the pension sector remains heavily invested abroad while direct exposure to the Government of Barbados is approximately 20 per cent.

“The critical role of pension fund management in the society is underscored by the fact that Barbados is confronting the challenges associated with an ageing population, a reflection of declining fertility and mortality rates,” the economic advisor stated.

He observed that improved healthcare management and living conditions have raised life expectancy and, in the 2019 report prepared by the Barbados Population Commission, it was estimated that 16.5 per cent of the population was 65 and over.

“This is anticipated to rise to 21.7 per cent in 2030 and 26.3 per cent by 2050.

In contrast, on current trends, the population, and by extension, the workforce will contract,” Haynes added. (EJ)