More than two thirds of employers now offers a responsibly invested company pension – but less than half have this as the default option.
These findings, in Scottish Widows’ latest Responsible Investment Pensions Report, show that the onus is often on employee to take action, if they want a more sustainable pension option – but almost two thirds (61 per cent) of workers they had no idea how to switch funds within a workplace pension.
Scottish Widows says this highlights the growing need for employers and advisers to educate workers on this issue. The research show more employees are becoming interested in how Environmental, Social and Governance (ESG) ‘friendly’ their company pension scheme is – with 60 per cent reporting an increase of employees seeking to understand how sustainability is embedded in their pensions in the past year.
When asked about the top two investment priorities for their pensions, long-term value growth (63 per cent) and financial risk management (41 per cent) were seen as the two most important objectives among employees.
But in addition, almost one in five (17 per cent) also class the environmental or social impact of their pension as a top priority. This rises to a quarter (25 per cent) of those aged 18-34, suggesting employees now want their pension investments to generate positive environmental or social outcomes as well as financial return.
This trend was also reflected when employees were asked which responsible investment tools they believed were most effective for delivering long-term, sustainable returns. Nearly half (45 per cent) said they would invest in companies directly contributing to positive environmental or social outcomes in line with the UN Sustainable Development Goals (SDGs), while 38 per cent would reduce exposure to companies or industries causing harm to the environment or society.
Employers appear to be responding to this demand and are taking a variety of approaches to embedding RI strategies into pensions. More than half of (53 per cent) are allocating pensions to specific sustainable funds, 46 per cent said they were invested in impact strategies and 45 per cent are focused on investing in companies that are cutting carbon emissions.
Employers also show a preference for active engagement with investee companies and voting (36 per cent), over exclusion policies (20 per cent); both important levers in the toolkit of a pension provider to manage ESG related risks and opportunities.
However the report also found that while employees are prioritising responsible pensions, many still feel uncertain about their options.
Key concerns include a lack of clarity around costs and benefits (25 per cent), doubts about comparable returns (23 per cent), and general uncertainty of funds labelled as ‘responsible’ (20 per cent).
For employers, the vast majority (91 per cent) say they offer guidance on responsible pensions, with 81 per cent feeling confident in their ability to do so effectively.
Scottish Widows head of responsible investment Eva Cairns says: “Providing workers with the opportunity to save for their retirement in a way that delivers financial and societal value in the long-term can only be viewed as positive, and we have an important role to play in educating savers about responsibly invested pensions.
“Employers and advisers are now tasked with navigating a critical balancing act: delivering pensions that grow while also reflecting employees’ values. This requires not just guidance but clear approaches, priorities and innovation – for example through private markets, active ownership and investments that support transition leaders and the achievement of the UN Sustainable Development Goals.”
