Should a workplace savings investment strategy reflect employees' personal beliefs?


Environmental, social and governance (ESG), socially responsible investing, impact investing, values-based investing, ethical investing. Whatever you refer to it as, it’s gathering momentum and it’s not going away.

Should a workplace savings investment strategy reflect employees personal beliefs?

Our realigning the workplace savings offering to meet the needs of millennials (2019) research shows that more than 25% of employees would or already do invest in ethical companies that have a positive impact on the world. But what about when it comes to putting their money where their mouth is?

Setting the scene – a brief overview

ESG integration is the process of conducting investment analysis and making investment decisions that consider environmental, social and governance factors. A fund manager will look at things like the company’s carbon emissions, labour standards and lobbying activity for example, when choosing whether to invest in this company as part of their fund offering.

Funds can also be defined as ‘ethical’ through positive or negative screening or both. A positive screening approach means seeking out companies to invest in that actively make a positive contribution to society and the environment. Negative screening means they’ll exclude funds based on specific criteria e.g. they might choose not to invest in ‘sin’ sectors such as oil, tobacco or gaming.

Other types of sustainable investing include:

  • sustainability-themed investing: investing in companies with strong ESG performance
  • active ownership: shareholder engagement on ESG
  • impact investing: investing in companies that make a positive impact on ESG factors while still earning a return.

But why should you to have a workplace savings strategy that reflects your employees’ personal beliefs?

In plain and simple terms, it’s demand. 2019 brought about a huge rise in awareness and outrage about the sustainability of the planet. From the devastating effects of weather brought about by climate change (think about the recent unprecedented Australia bushfires and droughts in Africa) to declining animal populations as a result of the amount of plastic ending up in the ocean; the movement to slow and reverse these effects continues to grow and demand change.

Research supports the fact that it’s no longer enough to simply reduce the use of plastic or choose organic produce anymore. In recent years, the focus has very much been on companies and their environmental and sustainable impact. Firstly, reducing it, and secondly actively doing something to improve it. And this tips over into people thinking a lot more about which companies they invest in.

Only 9% of investors never invest in sustainable funds, with 52% of millennials often or always investing in sustainable funds, according to Schroder’s Global investor study – Global perspectives on sustainable investing (2017). Sustainable investing can mean different things to different people, but the general trend is showing increasing popularity for these types of investments.  

Over 67% of employers say the majority of their younger employees aren’t engaged with pensions, according to our Pensions research: A real need for change (2019). But what if employees understood that they could invest for their future in a way that aligns with their personal beliefs? We know the demand for responsible investing is there, so perhaps they’d be more likely to engage with their pensions and wider workplace savings offering if it offered the opportunity to invest in funds that fit their ideals.


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The benefits of sustainable investments

Many people don’t know what they’re invested in when it comes to their pensions. A survey carried out in October 2019 by the Money and Pensions Service found that, 52% of people believe that money invested in a pension tends to grow at the same rate as you would get in a savings account. But evidence shows that sustainable funds are likely to outperform non-sustainable funds in the long run.

This performance relates back to companies behaving in a more sustainable manner. Take a car manufacturer focused on electric vehicles. The future of that company is likely to look a lot better than one that consistently operates in an unsustainable manner. That means investing in this company is likely to produce better performance in the long run. And now there’s so much more choice. At one time, investors were faced with a limited choice of funds, which made diversifying a lot harder. Having a greater number of sustainable funds is also why these funds are now showing promising performance outcomes.

What this means for employees is that if they’re able to choose to invest in ethical funds for their pensions, they benefit from saving and investing in a way that agrees with where they stand on sustainable issues as well as potentially getting better returns. So actually, their personal beliefs might contribute to higher engagement as well.

A route to more active pensions engagement

With only 9% of 18–35-year-olds concerned about saving for retirement, according to our realigning the workplace savings offering to meet the needs of millennials (2019) research, perhaps appealing to their personal beliefs would increase these numbers and get them actively engaging in saving for the future.

What’s even better is offering an additional ‘ethical’ savings vehicle as part of your financial benefits package such as an ISA, so employees can save for the other life events they’re prioritising before retirement, including buying a first home or just having enough money to comfortably support them and keep them out of debt.

This article is provided by Smarterly.  


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