How retirement investments align with long-term environmental goals

What do retirement plan sponsors and sustainable investors have in common? A focus on the long term. We explore how different asset classes, particularly real assets, can be aligned with long-term climate-related objectives, such as reducing carbon footprints to net zero. By extension, we suggest ways for retirement plan sponsors—whether in the defined benefit or defined contribution space—to align their investments with increasingly common sustainable climate goals.

Key takeaways

  • Climate-related risks and opportunities are present in virtually all asset classes, but real assets—including infrastructure, real estate, timberland, and farmland—may offer relatively stronger profiles of climate resilience to investors.
  • As the world transitions to a low-carbon future, exposures to and within specific asset classes can be optimized to maintain alignment with climate and other environmental goals.
  • As defined benefit (DB) plan sponsors consider assigning mandates and defined contribution (DC) plan sponsors build and monitor fund lineups, these fiduciaries can also be mindful of how retirement portfolios can align with key climate goal milestones.

Prevalence of net zero targets among major asset classes

Asset class

Index proxy

Companies reporting GHG emissions (scope 1 and 2)

Companies with self-declared net zero targets

Global infrastructure

S&P Global Infrastructure Index

89%

54%

Global real estate investment trusts

MSCI World Real Estate Index

86%

25%

Global large-cap equity

MSCI ACWI Index

74%

35%

Canadian all-cap equity

S&P/TSX Composite Index

65%

23%

Canadian core fixed income

FTSE Canada Universe Bond Index

45%

16%

Canadian long duration core fixed income

FTSE Long Term Canada Bond Index

38%

14%

Source: Manulife Investment Management, Bloomberg. Data is as of March 30, 2023. The S&P Global Infrastructure Index tracks the performance of companies from around the world that represent the listed infrastructure industry while maintaining liquidity and tradability. The MSCI World Real Estate Index tracks the performance of mortgage companies, property management companies, and real estate investment trusts. The MSCI All Country World Index (ACWI) tracks the performance of large- and mid-cap stocks of companies in developed and emerging markets. The S&P/TSX Composite Index is the benchmark Canadian index that tracks the performance of companies listed on the Toronto Stock Exchange (TSX). The FTSE Canada Universe Bond Index tracks the performance of marketable government and corporate bonds outstanding in the Canadian market. The FTSE Long Term Canada Bond Index tracks the performance of marketable long-term government and corporate bonds outstanding in the Canadian market. It is not possible to invest directly in an index.

Investing involves risks, including the potential loss of principal. Financial markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments.  These risks are magnified for investments made in emerging markets. Currency risk is the risk that fluctuations in exchange rates may adversely affect the value of a portfolio’s investments.

Any ESG-related case studies shown here are for illustrative purposes only, do not represent all of the investments made, sold, or recommended for client accounts, and should not be considered an indication of the ESG integration, performance, or characteristics of any current or future Manulife Investment Management product or investment strategy.   

Manulife Investment Management conducts ESG engagements with issuers but does not engage on all issues, or with all issuers, in our portfolios. We also frequently conduct collaborative engagements in which we do not set the terms of engagement but lend our support in order to achieve a desired outcome. Where we own and operate physical assets, we seek to weave sustainability into our operational strategies and execution. The relevant case studies shown are illustrative of different types of engagements across our in-house investment teams, asset classes and geographies in which we operate. While we conduct outcome-based engagements to enhance long term-financial value for our clients, we recognize that our engagements may not necessarily result in outcomes which are significant or quantifiable.  In addition, we acknowledge that any observed outcomes may be attributable to factors and influences independent of our engagement activities.   

We consider that the integration of sustainability risks in the decision-making process is an important element in determining long-term performance outcomes and is an effective risk mitigation technique. Our approach to sustainability provides a flexible framework that supports implementation across different asset classes and investment teams. While we believe that sustainable investing will lead to better long-term investment outcomes, there is no guarantee that sustainable investing will ensure better returns in the longer term. In particular, by limiting the range of investable assets through the exclusionary framework, positive screening and thematic investment, we may forego the opportunity to invest in an investment which we otherwise believe likely to outperform over time. Please see our ESG policies for details.

The information provided does not take into account the suitability, investment objectives, financial situation, or particular needs of any specific person. You should consider the suitability of any type of investment for your circumstances and, if necessary, seek professional advice.

This material is intended for the exclusive use of recipients in jurisdictions who are allowed to receive the material under their applicable law. The opinions expressed are those of the author(s) and are subject to change without notice. Our investment teams may hold different views and make different investment decisions. These opinions may not necessarily reflect the views of Manulife Investment Management or its affiliates. The information and/or analysis contained in this material has been compiled or arrived at from sources believed to be reliable, but Manulife Investment Management does not make any representation as to their accuracy, correctness, usefulness, or completeness and does not accept liability for any loss arising from the use of the information and/or analysis contained. The information in this material may contain projections or other forward-looking statements regarding future events, targets, management discipline, or other expectations, and is only current as of the date indicated. The information in this document, including statements concerning financial market trends, are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Manulife Investment Management disclaims any responsibility to update such information.

Neither Manulife Investment Management or its affiliates, nor any of their directors, officers or employees shall assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained here. All overviews and commentary are intended to be general in nature and for current interest. While helpful, these overviews are no substitute for professional tax, investment or legal advice. Clients should seek professional advice for their particular situation. Neither Manulife, Manulife Investment Management, nor any of their affiliates or representatives is providing tax, investment or legal advice.  This material was prepared solely for informational purposes, does not constitute a recommendation, professional advice, an offer or an invitation by or on behalf of Manulife Investment Management to any person to buy or sell any security or adopt any investment strategy, and is no indication of trading intent in any fund or account managed by Manulife Investment Management. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Diversification or asset allocation does not guarantee a profit or protect against the risk of loss in any market. Unless otherwise specified, all data is sourced from Manulife Investment Management. Past performance does not guarantee future results.

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Manulife Investment Management is the global wealth and asset management segment of Manulife Financial Corporation. We draw on more than a century of financial stewardship to partner with clients across our institutional, retail, and retirement businesses globally. Our specialist approach to money management includes the highly differentiated strategies of our fixed-income, specialized equity, multi-asset solutions, and private markets teams—along with access to specialized, unaffiliated asset managers from around the world through our multimanager model.

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Emilie Paquet, FSA

Emilie Paquet, FSA, 

Head of Strategic Initiatives and Innovation, Multi-Asset Solutions Team

Manulife Investment Management

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Alyson J. Slater

Alyson J. Slater, 

Managing Director, Head of Sustainable Investment Canada, Public Markets

Manulife Investment Management

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Vishal Mansukhani, CFA

Vishal Mansukhani, CFA, 

Global Multi-Asset Client Portfolio Manager, Multi-Asset Solutions Team

Manulife Investment Management

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