The research by ShareAction found six out of nine auto-enrolment pension providers fail to take a stand on weapons investment, while seven providers are lax on tax avoidance, despite societal concerns.
The report found Nest had performed considerably better than other peers in terms of responsible investment, and that providers bar one present a climate risk lottery.
It also highlighted a ‘disappointing’ performance across the industry on member engagement and communications and identified that boards of trustees and governance committees are made up of less than 30 per cent women.
Six out of nine of the UK’s largest automatic enrolment pension providers have no policy to prevent investments in companies that profit from chemical and biological weapons, a new market ranking finds.
For their default funds, where the vast majority of savers’ pension pots are invested once enrolled, Aviva, The People’s Pension, Royal London, Scottish Widows, Aegon, and Standard Life do not screen out firms that produce toxic components of harmful weapons, according to ShareAction.
Aegon was criticised for having no exclusion policy for any controversial weapon, including anti-personnel mines and cluster munitions, from any of its funds.
Nine out of ten providers responded to the survey. Scored out of a possible 352, the top five performers are: NEST (260), The People’s Pension (204), Legal & General (contract-based: 200, master trust: 195), Aviva (193), Standard Life (contract-based: 193, master trust: 192). The bottom five performers are: Scottish Widows (187), Royal London (166), NOW: Pensions (139), Aegon (90), and Smart Pension (who withdrew from the survey).
The campaign group finds in the report, calledThe Engagement Deficit, that on the whole, auto-enrolment providers are ‘lax on tax’. Only Nest and Royal London were found to have specific policies on how they are actively encouraging responsible tax conduct by investee companies. Both recognise that an aggressive tax policy is a reputational and regulatory risk.
Based on its findings, ShareAction recommends that providers produce a statement of responsible investment principles which includes a commitment to engage with underlining investments to promote better practice on financially material issues like climate change and tax.
ShareAction research officer Paul Britton, the report’s author, says: “The strong incorporation of responsible investment principles is good for our savings and good for society. The lacklustre performance across member communications and engagement by all providers is no real surprise. Of course, auto-enrolment pension providers cannot be solely blamed for Britain’s retirement cliff-edge, but they do need to act on their key position to engage the 9 million new workers with their pension savings. Hoping members don’t opt-out as the minimum contributes rates rise is not enough – people need compelling reasons to save.”
Frank Field MP, chair of the House of Commons Select Committee on Work and Pensions, says: “It is against this backdrop [of auto-enrolment] that ShareAction has produced this significant piece of research into areas that took a back seat during the first stage of automatic enrolment…This is also an important opportunity to focus on the incorporation of responsible investment – especially in the default fund where the vast majority of these new savers are – ensuring that even the most disengaged savers still benefit from the proper consideration of environmental, social and governance risk. This new generation of savers is especially well placed to take the long view and realise the benefits of a retirement plan that is truly sustainable for them personally, but also for their fellow citizens and the planet.”
The Pensions Regulator acting executive director Anthony Raymond says: “These providers are all in the market for automatic enrolment business, so it is disappointing that their member communication and engagement strategies seem built on the presumption that those who join a scheme through automatic enrolment then suddenly become proactive and engaged and come looking for information.”
A spokesperson for Royal London says: “The Royal London Group has a policy to exclude controversial weapons from our active funds managed by RLAM however we do have a very small exposure via our passives which track the benchmark and cannot at the moment exclude these companies.”
A spokesperson for Aegon says:“In our response to the Share Action survey, Aegon focussed on workplace default funds. As we explained, these are passive funds which means they track the make-up of various stock indices. Two ESG considerations should be emphasised in respect of passive funds’ increasing alignment with ESG objectives -the make-up of such indices, such as the S&P-500, is changing over time as climate focused stocks gain in market value. Therefore Aegon’s default fund is becoming increasingly ESG aligned.
“And by example, the Aegon default fund’s North American investments already have significant exposure to Tesla and Google, both ESG aligned securities.
“Furthermore individual companies in various indices are adjusting their business models to reflect climate change, such as SSE Energy investing in wind farms, Shell investing in electric car charging networks.Index investing is a method, by default, of gaining increasing ESG exposure.”
Nest head of responsible investment Diandra Soobiah says: “Only this week MPs on the Environmental Audit Committee highlighted climate change as a key risk that pension schemes should be addressing. This ranking will allow us to understand where more work is needed and help us to contribute towards developing higher standards across the industry. We know that investing responsibly leads to better outcomes in the long run for members, which is why we’ve put it at the heart of our investment approach.”
Legal & General Investment Management head of DC distribution Emma Douglas says: “We welcome this report from ShareAction which highlights a number of key issues of interest to ourselves and the pensions industry at large. ShareAction do a great job as champions of responsible investing and it contains some important and challenging findings. We’re pleased to be recognised for our record on ESG including the development of our new Future World Fund which invests in companies that are poised to benefit from the transition to a low-carbon economy.”
Smart Pension chief investment officer Darren Agombar says: “We are fully supportive of ShareAction’s ambition to highlight responsible investment and have already committed to taking part in this exercise going forward. This was entirely an issue of timing for us and when ShareAction were collating the information for the report, we were transitioning to a new investment strategy – now completed – and did not want to place dated or potentially misleading information in the marketplace that may have resulted in confusion for members.”
Friends Provident Foundation director Danielle Walker Palmour says: “We are pleased to support this ground-breaking survey by ShareAction, which shines a light on auto-enrolment pensions’ wider performance, both how they reflect the concerns of society as well as prioritise communicating with their members. Independent surveys of pension providers by ShareAction provide an important wake-up call to companies that they cannot measure success by financial performance alone. Pensions are long-term savings for everyone and it is vital pension providers are responsible stewards of that trust”.