Sustainable investing and the workplace pension

There is an increasing awareness amongst individual investors that exactly where and how they choose to invest can have a wider impact – be it corporate governance, human rights and/or combating climate change.

It is however generally lesser known that those with workplace pension policies may also be able to have a similar impact.

ESG

Investment or pension funds will generally be collective funds investing into other funds, assets and or geographical regions as per the fund’s defined aim.

Socially conscious investors can use a set of environmental, social and governance (ESG) standards to assess a company’s wider impact in these particular areas

Environmental criteria considers how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.

By using this criteria, both fund managers and individuals invested in their funds can use their scale and influence within the market to propel positive change on particular issues.

Workplace pensions

Legislation introduced by the Department Of Work and Pensions (DWP) in October 2019 requires pension scheme trustees, which will have been appointed by the pension scheme provider, to now consider ESG factors in their investment decisions.

In particular, trustees are now required to have explicit policies in their Statement of Investment Principles (SIP) relating to:

•  How they take account of financially material considerations (including ESG factors) in their investment decision making
•   How they undertake engagement activities and exercise rights that attach to their investments
•   The extent (if at all) to which non-financial matters (such as members’ views) are taken into account in the selection, retention and realisation of investments

This was then taken even further in October 2020 when the DWP brought in their next instalment of requirements. Trustees must now clearly specify their arrangements with their asset managers and produce an implementation statement, disclosing how they have acted on the principles in their SIP.

These measures mean that trustees are now faced with a heightened level of public scrutiny as to how and where they invest, in turn leading to many workplace pension policy holders now also having the ability to invest in a socially conscious way.

Workforce engagement

Many employees and members of workplace pension schemes are keen to invest responsibly but tend to simply stick with their default fund.

This may often be as a result of a lack in knowledge in of what alternative options are even available to them and their own personal confidence in choosing one fund over another.

Knowing that the workplace pensions scheme provided by their employer has the option to invest in a manner reflective of their own personal preferences can help them feel more engaged with not just their own retirement savings, but also their employer.

To review your workplace pension scheme please contact our financial planning team on +44 (0)1227 768231 or provide your details on our online enquiry form.

The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice.

You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation.

Kreston Reeves Financial Planning Limited, Independent Financial Advisers. Authorised and regulated by the Financial Conduct Authority.