A survey conducted by NEST highlights its members' views on responsible investment. Kim Kaveh explores the data
Engaging with pension savers is important to deliver good retirement outcomes and responsible investment is an excellent subject to get members engaged - a sentiment which NEST strongly agrees with.
Its recent research - included as part of its annual responsible investment report unveiled on 6 October - highlighted that 73% of savers thought it was important their pension scheme considered the environment, society and corporate behaviour when investing their money.
Data in this study were drawn from three separate surveys last year and weighted accordingly. One of the surveys in September involved 5,481 members, and a separate November study included 3,543 members. Both of the studies were weighted to reflect NEST membership by age and gender. A third survey also done in November last year involved 1,030 members working in the private or third sector.
Nearly half (47%) said responsible investment "mattered a lot to them", and just over a quarter agreed that responsible investing produces better returns.
However, 12% did not cite it as a key concern. Women were more likely than men to want their pension scheme to take account of people and the planet when making investment decisions on their behalf. Some 51% of women said it mattered a lot, compared with 43% of men. Some 46% of members included in the study were women and 54% were men.
Meanwhile, 44% said information about responsible investment activity would make them more interested in their pension. Some 38% were neutral, one in 10 disagreed and 8% were unsure.
The same survey demonstrated that a quarter did not trust pension companies. However, under three-quarters (73%) thought workplace pensions were a good idea, and 43% agreed that their money is safe was with NEST.
Commenting on the launch of the report, secretary of state for work and pensions Esther McVey said since 2010 the pensions industry has transformed.
"In the last six years almost 10 million people have automatically enrolled into a pension scheme, and the number of members of an occupational pension scheme has increased by almost 50%, up to 41.1 million in 2017.
"And these savers, particularly new younger savers, are wanting a say in where they put their money. Technology, transparency and the new changes we have introduced make it easier to do that by accessing information about the nature and sustainability of investments.
"We are putting power back in the hands of individuals, giving them the ability to see where their money is going and choose what investments they want to back."
She further noted that increasingly people are "looking to support companies whose values align with theirs, environmentally and socially, giving them a say and a stake in a future world".
The report follows a separate Blackrock survey which revealed companies should revaluate their approach to defined contribution (DC) default design as more than 80% of savers trust employers to choose the right investments. The firm has also called for improving communications with their members to engage them with their scheme.
NEST is aiming to address environmental social and governance (ESG) in factor-based of alternative indices to give exposure to different elements that drive risk and return, setting out some possible approaches. For example, it may incorporate ESG as a specific factor to track. If it were to go forward with this approach, NEST would look to see if ESG issues are, or can be, considered a ‘factor' by which to rank companies in an index.
This would be alongside traditional factors such as momentum of companies - short-term or rapidly moving trends in company share price performance, and quality - the underlying stability and transparency of company earnings. It would also include growth - the rate at which a company's earnings will increase.
NEST has also said it could possibly select traditional factors with positive ESG characteristics. It is looking into whether certain traditional factors can indicate strong or improving ESG performance. For example, it could look into whether ESG performance is associated with certain factors like momentum, quality and growth.
Finally, NEST has said it could employ ‘tilts on a factor-based index'. The starting point here would be a factor based index to which an ESG screed is applied. For example, excluding certain companies due to poor ESG scores.
Positive tilts' will apply to firms that support or use renewable technology, and are performing in line with the Paris Agreement which aims to restrict global temperature increases to below two degrees Celsius above pre-industrial levels.
Last year, NEST partnered with UBS to reduce its default fund's exposure to climate change risk, while attempting to influence corporate change.
The firm's head of responsible investment Diandra Soobiah said a potential £495bn will flow into workplace pensions over the next twelve years, making workers more powerful shareholders with a major stake in how companies and markets are run.
"They're telling us they want this money invested responsibly, which could improve the environment and society they'll live and retire in as well as their future bank balances.
"Hearing savers on this issue is a win-win. A more responsible approach to investing can boost long-term financial returns, build a better, more sustainable future, and has the added benefit of being something about pensions that might genuinely excite people.
"The green shoots of a strong pension saving culture are beginning to show in the UK, but people still mistrust the pensions industry. Investing thoughtfully and responsibly could clearly go a long way to building the trust and confidence still needed to help that culture flourish."
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