How to use responsible investment to engage employees with pensions and benefits

Companies globally are being pressured by their shareholders to have clear strategies for climate change, social and governance matters. Many of these shareholders are pension funds whose fund managers meet with company management and use voting to drive this change. It means corporate strategic priorities are increasingly aligned to pension investments.

Communication with employees can highlight how their pension plays a part in this and how the positive change agenda within their employer’s strategy can link to an individual employee’s personal priorities. Not only that, but also the way an individual’s pension is invested and managed circles back, in a small way, to shareholder influence on the strategy of their employer.

Use your pension to make a difference!

After 15 months of Covid-19, employees’ personal priorities have changed – and this gives employers an ideal opportunity to engage employees in a different way.

The climate agenda has moved from being an important consideration to being front and centre in our daily lives.
Employees are much more conscious how family, friends and colleagues have fared through the lockdowns, including their mental and physical health.
People of all ages are ever more conscious of responsible behaviour – particularly with respect to diversity, biodiversity and health.
Company priorities and actions are under the spotlight, e.g. treatment of the workforce, respecting communities and low carbon strategies.
Employees need to realise the way they invest their pensions can make more difference to these emerging priorities than almost anything else they can do in their personal lives. For example, £100,000 invested responsibly in your pension pot is equivalent to taking six cars off the road, whilst driving better corporate behaviours in a range of ways.

Want to know how to engage millennial staff? Well, 81% would like to know more about sustainable investing, according to KPMG’s The numbers that are changing the world (2019) report. To me, that seems a good place to start!

How pensions can help with personal priorities

We like to tell employees invested in a defined contribution (DC) pension they are savers, but many don’t realise they are investors who can make a difference. Even defined benefit (DB) pension scheme members are now often making a difference, as trustees are increasingly switching to the sustainable funds to reflect and support what members want.

Employees don’t have to give up financial returns to influence positive change. This kind of investing is expected to perform at least as well as investments without a sustainable strategy.

So, what can employers encourage employees to do?

Check to see how their pension is invested.
Look at what is in their DC default fund. Is it invested responsibly? If not, ask why not.
Ask what self-select funds are available. Many pension schemes are increasing their choice of low carbon, sustainable and impact funds.
Some big DC trusts (and master trusts) will even soon be allowing members to influence how companies vote.

That is how employees can make their money matter.

When have pension funds felt so relevant as today?

This is likely to be the first time where what is going on in an individual’s pension investments feel interesting and relevant to the non-investment savvy. The more members contribute, the more they can influence positive change so, when they retire, the world is a better place in which to live and they’ll be enjoying it with more financial security.

The author is Gerald Wellesley, client director at Punter Southall Governance Services.

This article is provided by Punter Southall Governance Services.

Responsible investing vs sustainable investing vs ESG – cutting through the jargon

ESG = environmental (climate, pollution, water use etc), social (workforce treatment, supplier management, communities etc) and governance (diversity, transparency, responsible management etc).
Responsible investing is a broad term to denote investing that considers a range of ESG matters.
Sustainable investing invests in companies with sustainable strategies that will thrive in the transition to a low carbon, fairer, cleaner world.