Newton’s Julian Lyne says ESG is critical in these pandemic times
The pensions industry has not been immune to the unprecedented challenges created by the Covid-19 pandemic. With global equity markets having experienced extreme volatility, pension funds will have seen significant falls in value, and many DC schemes will be evaluating how they can continue to deliver the best outcomes for their members. Schemes will also be exploring ways to engage with members, many of whom are likely to view their pension as low priority as they now face the prospect of furlough or cuts in pay.
In this environment, as investors we want to ensure that our focus remains on the long-term trends that will drive opportunities and risks. We are already seeing investment conversations change. Discussions naturally continue to take account of geopolitical risk, but the conversation is now flowing from politics to health provision, jobs and huge economic subsidies. This is a different narrative, with greed definitely not being viewed favourably; note, for example, the backlash seen against those firms that appeared not to be protecting staff and customers as the pandemic escalated in March.
With this in mind, we think it will be increasingly important for those responsible for pensions to demonstrate they are acting in their members' best interests. As investment managers, we should think not only about the changing investment landscape, but also about our contribution to society. In this context, we believe that environmental, social and governance (ESG) analysis will be critical. As stewards of capital we can allocate that capital to those companies that help address big issues such as climate change and the continued increase in inequality. Engaging with companies on the ESG issues that matter to people can be an effective way of helping to drive positive change.
Schemes may therefore wish to take a step back to ensure they fully understand the approach being taken by their managers. If trustees believe ESG factors are increasingly important, are these being reflected in the way their default strategies are managed? Do schemes have appropriate exposure to liquid equity or multi-asset funds that seek to capture the post-coronavirus opportunity set, or to fixed-income products that are designed to benefit from the renewed focus on the changing climate? Above all, the pensions world will want to offer solutions with exposure to attractive investment opportunities, but that also meet members' expectations of how their providers will behave in the ‘new normal'.
Julian Lyne, chief commercial officer, Newton Investment Management
Important information: These opinions should not be construed as investment or any other advice and are subject to change. This article is for information purposes only. Any reference to a specific country or sector should not be construed as a recommendation to buy or sell investments in those countries or sectors. Issued by Newton Investment Management Limited, The Bank of New York Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Registered in England No. 01371973. Newton Investment Management is authorised and regulated by the Financial Conduct Authority, 12 Endeavour Square, London, E20 1JN and is a subsidiary of The Bank of New York Mellon Corporation.