The importance of a robust Responsible Investment Policy
Guided by our Responsible Investment Policy, The People’s Pension aims to lead the industry in driving positive change, addressing inefficiencies, and strengthening stewardship practices.
The key purpose of getting your employees signed up to workplace pension like ours is to grow their savings and provide them with a stable financial future by the time they reach retirement. However, considering big societal and financially material challenges, such as climate change, more emphasis than ever before is being placed on environmental, social, and governance (ESG) issues when it comes to investing your employees’ pension savings.
It’s easy to cynically write off ESG as a PR exercise prone to greenwashing. Yet, while there has been some regulatory pushback against ESG investing, such as action in some US states to block asset managers from considering climate change and other ESG issues when investing. We believe that ESG investing and positive financial returns needn’t be mutually exclusive. So, how do we go about growing our members’ pension pots while at the same time managing ESG considerations within our investment portfolio to help drive positive change?
A comprehensive framework
Our Trustee and expert investment team have worked hard to produce a robust Responsible Investment Policy rooted in a theory of change – which explains how the activities undertaken contribute to a chain of events that lead to the intended outcomes we’re trying to achieve. It provides us with a comprehensive framework when undertaking our ESG stewardship activities (how we use our influence to shape the strategy of the companies we invest in) and when looking after almost £30bn in investments on behalf of our 6.5m members. This scale, as one of the largest UK asset owners, gives us the influence to amplify the voice of your employees and drive the positive changes they want to see.
We know our members care about climate change1 and want us to invest their savings in a sustainable way. Coupled with the financially material risks of climate change (for example, stranded assets, which suffer devaluations as the world paradigm shifts from carbon-heavy industries), we believe a comprehensive, responsible investment approach can boost member investment returns over the long term.
We’re always happy to help!
Employers
We can support your wider workplace engagement plans.
Advisers
Manage your clients’ accounts easily.
Our approach to responsible investment
Like other large institutional asset owners, we invest our members’ money in a diverse selection of global companies to target positive returns on their savings. Our stewardship approach, therefore, requires a systemic outlook that captures corporate activity globally rather than a simpler, narrower range. This can place strain on stewardship activities. So, our Responsible Investment Policy strategically prioritises areas where we think we can make the most difference.
Our stewardship priorities include:
- Prioritising 3 ESG risks – climate change, nature, and human rights – that have interconnected effects.
- Setting robust expectations for our fund managers (investment professionals who invest on our and our members’ behalf) to make sure they fully align with our Responsible Investment Policy and allocate the necessary resources to their stewardship activities.
- Holding our fund managers accountable when casting shareholder votes on our behalf and implementing an appropriate escalation strategy if they fail to meet our responsible investment requirements. Our net zero voting guidelines help us achieve this.
We aim to meet these priorities through comprehensive engagement across all our holdings, enabling us to hold all the companies we invest in accountable and drive better corporate behaviour, thereby enhancing value for our members, your employees’.
Key to this approach is the stewardship resourcing of our fund managers. We recognise our role as providers of capital to drive necessary change in this area, which is why we are actively involved at an industry level to address the issue.2
Around climate change, we have prioritised important sectors linked to fossil fuel reliance (both supply and demand), deforestation, and financing (banks). We have also prioritised deeper scrutiny of climate disclosures on capital expenditure, climate lobbying, and financial statements as we believe these areas represent a true test of a company’s net zero commitment.
We’re doing all this in order to improve member outcomes while attempting to mitigate the worst effects of corporate activity on climate change, the natural environment, and human rights. Through the implementation of this Responsible Investment Policy, we are dedicated to doing our share to promote change and address industry concerns about the efficacy of stewardship and the potential for greenwashing.
How does this help you as an employer?
Offering a workplace pension with a robust approach to responsible investment can significantly benefit your company as well as the financial futures of your staff. It can enhance employee retention and encourage pension engagement, as employees increasingly value employers that demonstrate a commitment to ESG principles. Furthermore, there is evidence that aligning your pension with ESG principles can lead to better investment returns for your employees over the long term.3
Footnotes
- Responsible investment | The People’s Pension (thepeoplespension.co.uk)
- Our Head of Responsible Investment was part of the PRI’s Stewardship Resourcing Committee.
- Achieving sustainable profitable growth with ESG | McKinsey