More than seven out of 10 DC scheme members want to see responsible or ethical investment strategies within their default fund, according to new research.
The survey, by Invesco Perpetual, found that almost half of members (46 per cent) favoured responsible investment even if this meant lower returns.
However, despite this interest in more responsible investment strategies, many members said they were not familiar with the terms or language used by asset managers, such as ‘ESG-led investments’ – where environment, social and governance (ESG) factors are taken into account when making investment decisions.
When asked “which is the best name for a fund that seeks to do good in the world while also generating good returns?”, “responsible investment” was the preferred term for 42 per cent of respondents, with 30 per cent favouring the phrase “ethical investment”. Only 14 per cent cited “environmental, social and governance investment” as the preferred option.
Invesco Perpetual says this was one of the most extensive studies into the langues of pensions, and included interviews with heads of pension schemes and focus groups, plus a survey of UK employees and workplace pension members.
It revealed overwhelming support for making responsible investing the standard policy for pensions investments. Asked if they would favour part of their pensions automatically going to a company which meets a certain ethical standard, over eight in 10 (82 per cent) of respondents said this was a good idea, while only 18 per cent see it as a bad idea.
When presented with hypothetical return scenarios, almost half (46 per cent) of respondents indicated they would invest in a fund that only invests in ‘socially and environmentally responsible companies’ with returns of 6 per cent a year, rather than a fund that ‘includes all types of companies’ with returns of 6.5 per cent a year. If both funds delivered the same historical returns of 6 per cent a year, three fifths (60 per cent) of employees surveyed would rather invest in the responsible option.
Invesco UK institutional sales director Stephen Messenger says: “We are seeing a clear shift in scheme members’ attitudes with regards to responsible investing, with the majority in favour of a responsible investment as part of their default fund.
“The fact that a significant proportion of employees are willing to sacrifice slightly lower returns for funds that invest in socially and environmentally responsible companies clearly highlights that responsible investment is a priority for employees.
“We expect a growing number of schemes to continue moving towards integrating responsible investments into their investment processes, and it is an item that will be at the top of trustees’ agendas.”
Invesco Consulting director Gary DeMoss adds: “Responsible and ethical investing is clearly a priority for many employees, so it is becoming increasingly important for pension schemes to consider the exact language they are using when communicating with their scheme members about the funds they are invested in.
“The fact that only 14 per cent of respondents prefer the term ‘ESG’ clearly highlights the communication challenge pension trusts face; this has been amplified by the overuse of industry jargon. At a time when it is crucial to encourage employees to think about their financial futures, it has never been more important for schemes to carefully consider their engagement strategies to improve conversations.”