Professional advisers want to know the schemes they recommend are addressing all of the issues that could affect members’ pots for better or worse.
NEST believes this should include how the companies and markets they invest in are run, how they generate profits and how they treat people and the planet.
However, for any advisers not yet persuaded by the growing emphasis on investing responsibly, here are five reasons to think again:
1. High quality investment approaches seek better risk adjusted returns and investing responsibly is one way of achieving this. Some schemes, including NEST, target an improvement in ESG performance where there’s evidence this can lower the amount of risk they need to take in order to achieve a return. Managing risk in this way can also contribute to a smoother investment journey and more certain outcomes.
2. Working as a responsible investor to improve how markets operate and are regulated can boost returns all round. Better-functioning markets are likely to support more sustainable returns for all investors.
3. When companies are encouraged by schemes to deliver more sustainable and stable performance by improving their ESG record, this supports good returns for scheme members. Working with companies to enable them to deliver sustainable long-term profits is appropriate for pension savers. After all, these are savers likely to be invested for decades and so not looking for flash-in-the-pan performance.
4. Managing ESG risks helps schemes handle potential reputational risks and maintain members’ confidence in saving. Where companies aren’t properly run, or don’t consider the environment or communities it can damage how members feel about investing. It can also impact how clients feel about a scheme you’ve recommended.
5. Issues like climate change are becoming more pronounced and investing responsibly will only become more strongly established in the mainstream. Working with schemes at the forefront of responsible investing is likely to have long-term advantages over working with those schemes currently silent on ESG issues.
NEST strongly believes that good quality master trusts do indeed take an active interest in where their members’ money is invested.
With a growing focus on responsible investment, schemes not yet incorporating ESG factors may find their current position increasingly challenged.
For NEST, considering ESG risks and opportunities is a means of making the most of members’ investments.
By representing our members’ interests when using their ownership rights, we’re looking to contribute to the growth of their pots and boost their confidence in saving with NEST.
The launch of auto enrolment in 2012 marked the start of a revolution in share ownership and investing in the UK. Millions more people now have a stake in companies and markets around the world for the first time.
From the start, NEST has been clear we want to work on behalf of members to support these companies and markets to perform well over the long term. We want to be an active asset owner on our members’ behalf, and be transparent on what this means in practice.