5 steps to aligning your pension fund with corporate ESG aims
Many employees are increasingly paying attention to the values of their company and how these align with their own.
While the focus to date has been at corporate level, some employees are now looking more closely, in particular considering where their pension scheme money is invested.
There’s also been an increased interest from government and regulators in this area too, meaning greater disclosure has become a requirement for some pension schemes.
For employers to attract and retain staff, having a strong employee value proposition that aligns with the staff values will become increasingly important.
Pensions are a large part of a company’s reward and benefit package and so employers are starting to consider how their pension scheme dovetails with their company’s wider policies on environmental, social and governance (ESG) issues.
Below are five steps to better align your pension scheme’s default investment strategy with broader corporate ESG aims.
1. Understand your current ESG aims
Not all HR and reward directors/governance committee members are directly responsible for setting company ESG aims. However, being clear on the corporate’s aims will be key to enabling greater alignment.
Engage with those who are responsible for setting the corporate strategy to understand the company’s ESG aims, pledges and timescales for achieving these so that you are clear on what you want to align to.
2. Develop a clear set of investment rules
Creating investment principles for the pension scheme, including ESG, will help you to be better able to make future decisions on the investments of the scheme.
These principles should be as clear, measurable and as codifiable as possible so that you can easily incorporate and assess ESG alignment with these when looking at your pension strategy.
3. Assess your current strategy against your beliefs
Looking at your current strategy against your principles can help assess how well your default investment strategy aligns to them and, in particular, the alignment of ESG integration with your corporate aims.
Once any gaps have been identified, you can then better determine how much of these commitments you would wish to incorporate further into the investments of your pension scheme.
4. Look at alternative strategies
If you have identified areas for improvement of ESG integration within the default, you should look to understand if alternative strategies can be introduced which better align with your ESG principles.
This can sometimes be a challenge to achieve through the off-the-shelf default strategies of master trusts or contract-based arrangements.
But, for those companies with the appetite to do this, bespoke investment strategies can be built with many of the leading master trusts and group personal pension providers.
Further, while some employers may not have the appetite to develop a bespoke default strategy for members, DC providers themselves are evolving their off-the-shelf strategies to align with carbon emission targets and other ESG considerations. This may help you to align your company’s ESG aims with your pension’s investment strategy.
5. Monitor your strategy and industry developments
Regularly monitoring and understanding the climate impact of the funds in which you’re invested will help support your wider sustainability and climate goals. It will also allow you to demonstrate, both to the organisation and members, the strides your investment managers are making in tackling ESG issues.
It’s a process
In line with our own clear climate pledge, we’ve already made changes to our own staff pension scheme at Hymans Robertson to help us align more closely with the firm’s values.
We see this as a process rather than a final position, where we can develop our strategy to reflect both the changing market background and the products available. We see other companies increasingly keen to do the same.
If you’re not doing so already, we challenge you to assess how well your own default pension scheme strategy aligns with the ESG goals of your sponsor – and to be bold enough to make changes where you believe this is the right thing to do.
In partnership with Hymans Robertson
We're one of the longest established independent consulting and actuarial firms in the UK
