The UK pensions industry needs to do more to engage consumer on ESG issues and reduce associated jargon, says Gareth Trainer head of unit linked invetsment solutions at Standard Life.
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Talking at Corporate Adviser’s ESG Investment Forum he said there was a fundamental mismatch between consumer expectations on this issue and the industry’s approach.
“From a consumer point of view this is a moral issue, about doing the right, or wrong thing. It is about passing a ‘smell test’,” he says.
“However from a provider, asset manager, trustee point of view the starting point is often financial risk and regulation.” These interests need to be better aligned he says.
Trainer pointed out that there was many consumers did not engage with the jargon inherent in this area. “Phrases like responsible investment, sustainability and ESG have very little cut through. The terms ‘climate’, ‘climate change’ and ‘ethical’ though carry more weight with consumers.”
Trainer also added that there was concerns about there being a “plethora of leadership which results in an absence of leadership”. He pointed to the statistics in the Corporate Adviser’s recent ESG report that there were 134 separate ESG bodies.
Trainer says concepts like Net Zero are important in creating a ‘single focus’ which can be understood by both consumers and the industry and can help drive change.
Trainer says the industry faces a challenge to develop default investment strategies that meet both consumer expectation and the needs of the various industry stakeholders.
He points out that consumer expectations vary. For example recent research conducted by Phoenix found 75 per cent of pension savers wanted tilting, 66 per cent range pension investments to have a positive impact, 64 per cent wanted to screen out companies that have the worst environmental track records. However 16 per cent wanted pension funds solely to concentrate on risk and return and ignore ESG considerations altogether.
“Pleasing all of these people all of the time is certainly a challenge when it comes to devising default options, but I would argue that it is possible to move to a place where the majority of people interests are being met.
He says that propositions need to take into account a default, which reflects the views of the majority, plus self-selection options.
Trainer adds that this is an ‘evolving’ area. He says it is important to build in flexibility into any proposition on default model. “We need to be pragmatic and flexible. Customers views on this are liable to change going forward. We need to adapt.”
He adds that there is also an issue with a lack of ESG viable components when it comes to building default strategies particular in bond, property and emerging market debt sectors.
“New solutions will have a lack of performance. This are all issues we have to take into account.”
“Customer have made clear that they want pension schemes to invest more responsibly but they don’t like or understand the way we are doing it at present. This is something the industry needs to address.”
