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Does your pension scheme invest responsibly?

Employers across the country, just like you, are helping to transform the UK retirement landscape by giving millions access to a pension scheme. But there are numerous aspects businesses need to take into account.
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By using a pension scheme, you’ll ensure staff have the opportunity to save for a comfortable retirement. A retirement in which they can afford to do the things they love doing today, like going on holiday, dining out or getting a round in at the pub.

Giving workers access to a pension scheme is the first part of a longer journey

There are already over 7.7m people newly saving, or saving more for their retirement. That’s a fantastic achievement. However, it’s important to realise that getting people into a workplace pension scheme is just the first step. These new members could be saving for ten, 20, 30 years or more.

During that time the many factors that could impact their investment returns need to be considered carefully. This has spurred increasing awareness about taking into account environmental, social and governance (ESG) factors.

What are ESG factors and how do they affect your workers’ pension savings?

Unless you work in the world of pensions and investments, where responsible investing is a hot topic, you may not have heard the term “ESG factor”, but you’ll most certainly be aware of many of them.

These issues often grab the headlines in newspapers and on television. Examples include pollution, climate change, greenhouse gas emissions, the way companies treat staff and customers, the level of diversity on boards and executive pay.

ESG factors are important when selecting a pension scheme as they can have an impact on investment returns in the long run. Taking them into account when making investment decisions helps to protect pension pots and make them more profitable. That’s because well-run organisations with sound environmental and social practices have a better chance of sustaining long-term success and profitability.

Take the banking sector for example. I’m sure you’ll remember the financial crisis in 2008 when share prices of UK banks plummeted? A significant part of the problem stemmed from poor conduct across the sector. As a result, banks paid out around £200bn in the form of fines and damages following charges of miss-selling and market rigging, among others. The money paid in fines could have been re-invested to create more growth and better outcomes for everyone.

Responsible investment is a force for good

Investing responsibly also has a wider benefit for the society and environment we live and retire in. That’s because when money goes into a member’s pension pot, many of these contributions are invested in shares in companies. Shares come with voting rights, which can influence how companies behave.

By voting on issues at annual general meetings, and engaging with companies and markets, schemes can encourage corporate behaviour that is more likely to deliver positive, sustainable long term returns. As part of this active role, they can also use their influence to improve corporate practices. This could be, for example, by agreeing to increase the amount they invest if the company makes the right type of change. That sends a strong message to businesses as well as providing an incentive.

What can you do as an employer?

If you’re currently looking for a pension scheme for your workers, or reassessing your choice, you can check whether the provider you’re considering invests responsibly. Take a look at their website and see if they’ve published a responsible investment report.

The ShareAction website is also a useful resource. It’s a charity that campaigns for responsible investment and assesses pension schemes based on their approach.

Paul Budgen is director of business development at NEST

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