Lauren Wilkinson is a senior policy researcher at the Pensions Policy Institute (PPI)
Environmental, Social and Governance (ESG) considerations are increasingly a focal point for policymakers and social movements around the globe. The pensions landscape has followed suit, largely driven by changes in regulation but also the increasingly widespread recognition of the financially-material nature of ESG risks, marking a shift away from the belief that ESG is synonymous with ethically-based investing.
As pension schemes’ focus on ESG has grown, so too has discussion of member views and the role they may play in influencing future investment strategies. While the primary focus of decision-makers responsible for pension schemes’ investment must be appropriately protecting members’ savings from the risks associated with ESG considerations, members may have strong views on the often-emotive issues that fall within this area of investment.
Increased societal focus and collective movements in recent years have led to a growth in engagement with ESG issues, especially climate change. This increased focus appears to extend to members’ views on their savings. A government survey carried out in 2019 found that 38% of pension savers would prefer for their pen- sion savings to be invested in a fund where 100% of its investments are sustainable, compared to 14% who said that they prefer to be invested in a traditional fund that does not seek positive impact on people and the planet.1
In another survey carried out in the same year, 78% of 22 to 39 year olds said that they would engage with their annual pension statement if it included more information on responsible investment. Among this age group, 45% said they would be motivated to increase their level of contributions if their pension scheme’s investment strategy was more aligned with their own views on responsible investment.2 These surveys, like much of the existing research on member views and engagement, rely on members self-reporting on preferences or hypothetical behaviour in response to a greater focus on responsible investment, rather than evidencing actual increases in engagement.
Although evidence of actual increased engagement as a result of an increased focus on ESG is less readily available, there are some examples. In 2019 Nest members were sent an email with the subject line: ‘Nest is going tobacco free across all our funds’ and a call to action to click a link to ‘view your pension pot’.
Although active members who had previously logged in and registered their account were more likely to open the email, with seven out of 10 doing so, the open rate for unregistered members was also relatively high: 45% of unregistered members opened the email. The click-through rate on the call-to-action link was nearly one in five for unregistered members who opened the email, illustrating an increased level of engagement from members who had not previously engaged with their pension online.3
While awareness of ESG issues is growing, as with pensions engagement generally, direct engagement on these issues between schemes and members remains limited. One consultant who responded to the Engaging with ESG survey said that while member views are ‘actively and regularly engaged and suggestions sought’ by the schemes they advise, ‘engagement from members remains limited’.
However, there is a widespread expectation that this will change over time. Three quarters of schemes that responded to PPI’s Engaging with ESG survey in 2020 expect member views to have more of an influence on scheme behaviour in the future. Member engagement on climate change may grow as younger members, who tend to be more engaged on these issues, become more engaged with saving.
Pension savers tend to become more engaged, on average, as they approach retirement. However, whether younger generations of pension savers, many of whom will have been automatically enrolled for the entirety of their working life, will follow this same pattern remains to be seen. Levels of engagement will need to be monitored over the longer term in order to understand the impact of responsible investment.
Notes and references
1) HM Government (2019) Investing in a better world: Understanding the UK public’s demand for opportunities to invest in the Sustainable Development Goals
2) Franklin Templeton (2019) The power of emotions: Responsible investment as a motivator for Generation DC
3) Nest Insight & LGIM (2020) Responsible investment as a motivator of pension engagement