Responsible investment is a phrase that has been thrust into the limelight in the last 12 months as more pension savers rightly become interested in how their money is invested.
But what does responsible investment actually mean?
At The People’s Pension, we have the dual responsibility of keeping savers’ money safe whilst generating positive returns – which of course must be further balanced against their own attitude to risk.
Our challenge is to determine how we invest member money in the types of industries and companies that they’re comfortable with, and still provide the type of growth needed to provide a meaningful return on their investment.
To be clear on the concerns our members have, we ask them. Over the last couple of years, we’ve run a survey asking them to rate the issues that matter most to them. Overwhelmingly, climate change came out as the most important topic, followed by controversial weapons.
So, if you know your customers’ primary concerns, how do you turn that sentiment into actionable change? Well, this question requires serious and careful consideration. For us, this means taking time to assess all issues thoroughly and taking a systematic and fact-based approach so we can make high-quality decisions on behalf of our customers.
This approach has seen us implement our first steps in ensuring our investment portfolio is aligned with our members’ wishes – we’ve completely excluded controversial weapons from our investment portfolio. This was a relatively straightforward decision to make and change to implement, as it had no material impact on the make-up and performance of our investment funds – so low risk and fuss free.
However, addressing climate change and how to travel down the road to net zero, requires rather more planning as it’s a very much more considered journey. We started in 2018, by adding a fund that reduces the carbon intensity of that part of our default funds. We acknowledge there is more to come, and from the mid-2020s we intend to use new contributions to smooth our transition to a net zero portfolio. This aims to balance the future risks of stranded assets against the current concentration risks caused by a relatively small number of net zero companies, as well as avoiding the potentially large transaction costs of having to sell significant assets in short time frames.
But there’s more to come. I’ll be at the Pensions Age Autumn Conference if you’re interested to hear more about our investment strategy and the further steps The People’s Pension plan to take on the route to net zero – look forward to seeing you there.