The survey was conducted among delegates at the Corporate Adviser 2018 Summit.
Following a speech by ShareAction’s investor engagement manager Anne-Marie Williams, 57 per cent said it was “essential” that default pension schemes considered ESG factors.
The remaining 43 per cent of delegates considered an ESG tilt a “nice to have” feature on a default fund, but did not think it was essential at present. None of those surveyed thought that ESG factors were not important.
Williams says the survey comes at a time of growing political momentum on this issue.
This has culminated with new regulations from Department of Work and Pension, which require trustees to consider ESG factors as part of their investment process. These will come into force in October 2019.
In parallel the FCA will also consult on this issue for contract-based providers next year. The Law Commission and TPR have also issued guidance on the financial risks of issues like climate change.
Williams says: “It is important for asset owners to hold asset managers to account on these issues.”
She says this issue was particular important in a DC pension environment where individuals were taking on investment risk.
In her speech, Williams says there are clear advantages for trustees and employers to take a more positive approach to ESG.
She says this can be a useful engagement tool, particularly among younger workers. “This is a way to engage people in the real world impact of where their money is invested.”
Williams is trying to encourage employers and pension funds to survey members to establish where their concerns and interests are regarding ESG factors.
For larger pension schemes there may be concerns about structuring a default pension scheme to reflect the diverse ethical views and opinions across their workforce.
But Williams says: “It is important to survey members as a first step, to find out what issues they care about. But our experience is that these views are often more coherent and less diverse than many people think.”
Williams says competition in this market from asset managers should help drive down costs in this sector. “Companies like LGIM have led the way on this with both equity and multi-asset solutions. We are expecting another big manager to make an announcement shortly, and then I think the launches in this area will come thick and fast.
“If there is demand from pension trustees and employers for effective and cost-effective ESG-funds then costs should fall.”
She points out that she believes there are strong financial reasons to use ESG factors as a risk management tool.
She points out that evidence suggests that there is no negative correlation between ESG factors and financial performance. “In fact in most cases there is a positive correlation.” Looking at these factors can identify companies – like Volkswagon – where failures on environmental or governance factors has led to share price devaluations.
In addition, Williams says it can also help identify investment opportunities, for example companies that may benefits from the switch from fossil fuels to renewables.
