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In recent years, there has been a growing interest in environmental, social and governance (ESG) factors among pension providers. This has been driven by a range of factors, including increased awareness of the risks and opportunities associated with climate change, social instability and other environmental and social issues.
Direct dialogue with company management
Increasingly pension providers are integrating ESG considerations into workplace default funds. This is in recognition of the fact that responsible investment can help to improve long-term outcomes for members, while also aligning with broader societal goals.
In addition, pension providers are engaging with companies more on ESG issues, in order to encourage them to improve their practices. This engagement is taking many forms, from voting at shareholder meetings to direct dialogue with company management.
Delivering long-term value for members
This trend is being driven by a growing awareness of the need to address climate change and other sustainability challenges, as well as by increasing regulation in this area. Many pension providers are therefore now looking to integrate ESG considerations into their investment strategies in order to better manage risk and deliver long-term value for members.
This is a positive development for employees, who can be confident that their retirement savings are being invested responsibly. It also demonstrates a growing recognition of the role that responsible investing can play in delivering financial returns.
Growing appetite among pension providers
A number of pension providers have already made commitments to integrating ESG considerations into their workplace default funds. Other pension providers are coming under pressure to integrate ESG considerations into their investment decision-making processes, in order to ensure that their portfolios are aligned with the evolving needs and expectations of their members.
These developments suggest that there is a growing appetite among pension providers for incorporating ESG factors into investment decision-making. This is also likely to result in more companies and industries having to disclose information about their environmental and social impact, in order to meet the needs of investors.
Need to address sustainability challenges
The trend towards integrating ESG factors into workplace default funds is likely to continue in the future, as pension providers now recognise the need to address sustainability challenges. Most workplace pension savers want their default fund to be an ESG one, according to research[1], with almost one in two savers (46%) saying these funds should look at sustainability issues.
Around 80% of those with a workplace pension say they have never made any changes to the fund they invest in, whilst 11% had only made a change once. Women are also more likely to have stayed in the default fund, with 85% not making any changes compared to 75% of men.
Factors when making investment decisions
Older members in particular are more likely to keep to their original fund choices, with 91% making no changes, compared to 34%, 18-34 year olds, most likely to review their investments.
If appropriate workplace pension members should consider ESG factors when making investment decisions for their retirement. They typically have a longer time horizon and can therefore afford to take a more long-term view.
Ready to play your part in promoting sustainable development?
The increased focus on ESG by pension providers is a positive development, and one that is likely to benefit members in the long run. It is also an important step in ensuring that the financial sector plays its part in promoting sustainable development. To find out more, please contact us, we look forward to hearing from you.
Source Data:
[1] Barnett Waddingham 12.21
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