Pension

• This publication is part of Strategic's Fiduciary Insights, a series of periodic publications dedicated to supporting those who share fiduciary responsibility.
• Building Blocks and Costs of an Internal Investment Office examines three illustrative cases that analyze the active management of multi-asset class portfolios with varying asset sizes.
• The cases explore portfolios with $500 million, $2 billion, and $10 billion in assets, focusing on recurrent costs while excluding direct and opportunity costs related to setting up an investment office.
• The paper provides valuable insights into the core functions and costs associated with operating an investment office.

• Existing measures to cajole companies to decarbonise, with subsidies for renewable energy and carbon taxes, have failed to prevent global emissions rising.
• State-owned energy firms that search for, produce and refine fossil fuels are among the most polluting organisations in the world.

A blessing or a curse?

• But ownership of a polluting, state-owned firm also creates conflicting incentives within and across different branches of a government.
• The ability of governments to use state-owned firms to tackle climate change depends on various governance issues within the state bureaucracy.

• State-owned utilities such as the Federal Electricity Commission in Mexico and Eskom in South Africa have previously defended their energy market monopolies against smaller competitors – in some cases, preventing more decentralised renewable energy generation.
• State-owned firms can exploit their close contact with policymakers to do this, and may even refuse to sign purchasing agreements with independent power generators.

State-owned firms and emissions

• Cap-and-trade regulations compel firms to buy carbon emission allowances and pay fines if they exceed them.
• Under a cap-and-trade system designed to limit the total amount of pollutants a company can emit, firms can also sell unused allowances.
• Take the EU Emissions Trading System (ETS): state-owned companies within it have lower emissions than their equivalents elsewhere that are not covered by such schemes.

• Governments that publicly commit to cap-and-trade or similar carbon pricing schemes have stronger incentives as a result of public pressure to ensure state-owned firms reduce emissions, compared with governments that opt out.
• Namely, that they constitute a means of tying a government’s reputation to emissions reduction, and so create incentives for that government to get serious about the emissions of its state-owned firms.

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• Aldo Musacchio is affiliated with the National Bureau of Economic Research (NBER) as a Research Fellow.
• He also receives funding from the World Bank and the Inter-American Development Bank for projects associated with state-owned enterprises.

• The number of babies born in England and Wales in 2022 fell by 3.1% compared to the previous year.
• The average age of parents is also at a record high, as people choose to delay having children.
• Instead of targeting specific birth numbers, we should focus on supporting parents and planning for future population changes.

Long-term trends

• In fact, fertility rates in England and Wales have not been that high since 1972 – more than 50 years ago – and yet the population has not decreased.
• The birth rates in the UK are similar to long-term trends experienced by many places in the world.
• Within this context it is clear that current birth rates, while low, are not wildly out of the ordinary.
• Projections are not predictions – and migration is particularly hard to predict given how much it depends upon changing policies.

The role of immigration

• Immigration has played a hugely important role in sustaining the UK’s population, economic growth, and workforce.
• Some people are concerned that immigration contributes to housing shortages and puts pressure on public services.
• Survey data also suggests that public attitudes to immigration have become much more positive in recent years.

• In the UK, most “baby boomers” – the people born in a post-war peak in the birth rate – have reached pension age, requiring more working people to support them.
• An increase in the fertility rate today would not have much impact on the working age population for at least 20 years.

Returning to work

• Indeed, the prohibitive cost of childcare means that many parents, especially women, struggle to return to work after having children or do not return in their full capacity.
• Over 1.5 million people are economically inactive, 85% of them women, because they are looking after family.
• And, importantly, the ability to decide if, when and how often to have children is a fundamental human right.

Melanie Channon receives funding from UKRI. She is Honorary Secretary of the British Society for Population Studies and a non-exec director of Bath Social and Development Research Ltd. Bernice Kuang works on an Economic and Social Research Council funded project.