InvestmentsJun 10 2019

Savers favour ethical investments in pensions

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Savers favour ethical investments in pensions

Seven in ten (72 per cent) defined contribution pension members want their scheme to include ethical investments in its default fund.

Research from investment management firm Invesco published today (June 10) found many savers favour responsible or ethical investments even if it means smaller returns.

The study, which surveyed 500 pension scheme members, found that 82 per cent of savers would favour part of their pensions automatically going to a company which meets a certain ethical standard, compared with 18 per cent who saw this as a bad idea.

Almost half (46 per cent) of DC scheme members said they would be more likely to pick a fund that only invests in socially and environmentally responsible companies with returns of 6 per cent per year rather than a fund that includes all types of companies with returns of 6.5 per cent per year.

If both funds delivered the same historical returns of 6 per cent, 60 per cent of DC members surveyed would rather invest in the responsible option.

Stephen Messenger, UK institutional sales director at Invesco, said: "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."

But Invesco also found that although ethical investing is also known as environmental, social and governance (ESG) investing in the industry, the term "ESG" is unpopular with scheme members.

Invesco found that responsible investment was the preferred term for 42 per cent of respondents, with 30 per cent favouring the phrase ethical investment, compared to 14 per cent who preferred the term ESG.

Gary DeMoss, director of Invesco Consulting, said: "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."

The study also revealed a preference for positive language when being informed about responsible investments. 

More than three quarters of respondents (77 per cent) believed that the best way to talk about a responsible investment was by describing it as a fund that "invests in companies that meet standards for doing environmental and social good".