Comparing a larger business with a smaller business when an adviser is trying to engage with them on the topic of environmental, social, governance and stewardship investing poses questions around how to plan such engagement and how those needs differ.
Should an adviser employ different tactics when trying to communicate with a smaller business versus a larger one and its employees? And can investing in ‘greener’ pensions help a business to meet its sustainability targets?
Ryan Medlock, Royal London’s senior investment development manager, believes that, theoretically, smaller businesses should be easier to engage with as there may be time for the adviser to address the majority of individuals in the scheme.
He says: “For larger businesses, you would need their support for this, for example by sending out questionnaires to staff and gathering responses.
“Either way it’s a difficult role for advisers as it is further information gathering and more time spent advising a single scheme.”
Brian Henderson, partner and head of sustainable investment at Mercer, says that during Mercer’s review of pension schemes as part of the organisation’s Responsible Investment Total Evaluation, it identified “cohorts of smaller schemes that are not embracing ESG in the same way as their larger brethren”.
He says: “This can be down to a number of reasons, from cost through to governance. However, the individual member should not be disadvantaged through the governance of the scheme and in some cases the scheme should maybe be folded into a master trust to get a better experience.”
A question of alignment
Dan Smith, head of workplace investing distribution at Fidelity International, says the answer to this question is relatively straightforward.
He adds: “Employers should work with their advisers to partner with a provider who has a default strategy and fund options that align with their corporate values.”
For Medlock, some businesses – particularly larger businesses – may see a ‘greener’ pension as a way to meet sustainability targets. However, he says that does not mean it is the right thing for the employees.
He explains: “We have to be cognisant of the business driving its own agenda and senior leaders or directors using the pension scheme as a ‘quick win’ on sustainability and net zero targets.”
Henderson seems to agree, as he says companies look strange when the pension scheme investment choice is not aligned with the policy on climate.
“It might not help a business become ‘greener’, but it does look odd if the company pension scheme that the chief executive officer invests in is doing something different to the company’s policy on climate.”
Another important consideration for advisers is how they can help employers decide which funds to choose for their workplace pension scheme.
Medlock says advisers should be taking a key role in advising which funds are correct for a particular scheme, not just in terms of attitude to risk but in other areas. In this bracket he includes attitude to ESG and its importance to scheme members, which could vary depending on the individual.