Across much of the pensions industry, member engagement is verging on non-existent. Trustees and employers are investing in high-quality communication exercises, but it is an uphill battle. The “why” behind this effort is clear: more engaged pension members will have greater financial literacy, making better decisions and improving their eventual retirement outcomes. Plus it’s better for commercial stakeholders if customers actually know who they are and stick with them long-term. But while the “why” may be clear, the “how” of engaging members is less so.
The 2020 DC Investment Forum Report showed that 67 per cent of members feel responsible investment (RI) would want to make them engage more with their pension; 65 per cent would have more trust and 50 per cent would contribute more. This is just one of many reports showing the potential impact on engagement that “responsible investment” or “ESG” could have.
But it’s a Catch-22. Assuming ESG is in place, how do we even get members’ attention to tell them about it?
Do members care whether P&G cuts down the rainforest? Do members care how Lululemon treats its down feather geese? Do members care how Tesla’s Congolese mines are operating? Do members care how Netflix treats its female employees? Do members care what climate targets Exxon is aiming for, or ignoring?
Of course they do. So we should use these issues – raised by direct shareholders ahead of company AGMs – to grab members’ attention, and then get members thinking about their pensions. Because when their pension is invested in these companies, these issues become both materially and morally relevant.
In September 2020, we asked over 1,000 DC pension members to tell their fund manager whether they thought Procter & Gamble should be more transparent about supply chain deforestation. Members were told that P&G was in their pension; they were told who their fund manager was and the fund manager’s role in the voting process, and asked to provide their opinion on the issue, with a guarantee their fund manager would view the aggregate results.
Members were given a summary of the shareholder’s original proposal. This asked P&G to produce a report outlining how it will address deforestation relating to the production of palm kernel oil and forest pulp which appear in products like Bounty paper towels and Ivory Soap. Members were also shown P&G’s publicly published response. Thereafter, hundreds of members submitted their “vote preferences” on this issue. Overall, it was a landslide with 99 per cent of people in favour of the resolution and only 1 per cent against.
The scheme’s fund manager took the vote preferences of its members into consideration during the stewardship process, which resulted in a vote in favour of greater disclosure. The fund manager reported back to members that they believed P&G needed to increase disclosure, specifically on the mix of forest fibres they use.
The vote was passed at P&G’s AGM where the majority of shareholders voted in favour; an event dubbed by the FT as an ‘investor rebellion’. Having shared this story with members, it’s now up to the asset managers to maintain engagement on this issue while members eagerly await an update on the real-world impact their money has made.
So, there we have it: we have successfully hooked the attention of automatically enrolled default fund members by combining trending topics, well-known brands and personal values. Then we have galvanised interest in long-term outcomes by relating this to a subjective mix of financial materiality and moral obligation. Not only have these members been engaged but they have collectively played a role in holding the most powerful asset managers in the world to account.
How can we trust ordinary people to make important decisions? Engagement isn’t about giving everyone a major vote, it’s about including people in processes that are related to them and of interest to them. Stewardship teams are accountable for effectively representing their members’ best interests. By including them in processes, like voting, they can get direct insight into what those member preferences are.
Stewardship is the catalyst needed to drive change across the investment system, and beyond it and we believe we can achieve significant positive change only when member engagement is put at the heart of that adventure.