23 Feb 2022

Five top tips for using ESG concerns to engage with your workforce

The world’s view of climate change and sustainability has evolved over the last few years. Many of us now carry a ‘bag for life’, try to eat less red meat and are generally looking to live life more sustainably.

A Pew Research poll from May 2021 found that 67% of Generation Z (aged under 20) and 71% of millennials (ages 20s and 30s) agree that tackling climate change should be a top priority of government, businesses and individuals. This is compared with 63% of Generation X (ages 40s and 50s) and 57% of Baby Boomers. But how do these lifestyle changes and views translate to pensions and, particularly, your employees' engagement on environmental social governance (ESG).

Engaging with employees on their pension is a difficult task as most employers/pension scheme trustees will know. Most employees are disengaged for a variety of reasons: too complicated, too much jargon, too many short term financial commitments – the list is endless.

Most younger people are (understandably) more concerned with paying off student debt, saving up for a house or just simply paying bills. However, with this growing concern for the environment, employees have started looking to their pension savings to see how they can make a difference.

According to Legal & General’s 2021 survey of UK Defined Contribution pension scheme members (in which 3,056 adults currently contributing to a workplace pension were surveyed), 25% of members might pay more into their pension if they were more informed about what is really going on with their money (compared with 14% in 2019). In addition, ventures like Make My Money Matter and Tumelo have tried to connect members with what’s underneath the bonnet of their pension savings.

ESG considerations are now incorporated into most UK Master Trust default strategies in some form or another, mirroring the impact ESG has had on the pensions industry. There has been a substantial rise in assets invested in funds incorporating ESG factors over the last 10 years and investment managers are responding with new products. The demand is growing, as is the supply.

Stewardship (where investment managers use their shareholder voting rights to influence and engage with companies) is important and a good topic for engaging employees. For example, where a company has had reputational issues or its stance on climate change has been questioned, investment managers can use shareholder rights to put pressure on the company. Where voting and engagement is used, investment managers can make a difference. This is something that more pension scheme members should know about.

Ultimately, employees’ growing interest in ESG can be seen as an opportunity to engage with them on their pensions. But this engagement needs to be ongoing and information must be filtered through to them at an attainable level. Listed below are some top tips to use ESG to engage with your employees.

1. Keep them informed – Make sure employees are aware of exactly what their pension is invested in. Provide them with as much information as possible around the ESG options available to them – both in the default strategy and the self-select fund range

2. Gather feedback – It is crucial to understand how your employees feel about their pension. Are you doing enough in relation to ESG? Do they have enough options to suit their views? An online survey is a great tool to seek out opinions on ESG and other aspects of the pension scheme.

3. Communicate the good stuff – If you produce a pensions newsletter (or similar publication), keep employees up to date with information around the ESG funds – how their investment manager has voted and any good news stories about their manager engaging with companies in order to make positive change

4. Share your ESG policies – If your pension scheme trustees have ESG policies or fundamental beliefs on ESG, share these with your employees. These will help them understand what the priorities are and how the pension scheme is facilitating change.

5. Go digital – Nowadays, benefit statements are increasingly produced via videos and communications are distributed by email. If these options are available, use them. They will demonstrate that as a company/ pension scheme, you are serious about cutting down on paper use and helping the environment.

This article was supplied by Hymans Robertson