Aberdeen Standard and FT sold out their conference on the DC investment default this week and kicked off the morning with a discussion on ESG and the greening of our pension pots.

As I listened, NOW Pensions sent me a press release;-

As part of its ongoing commitment to socially responsible investment, with effect from October 2017, NOW: Pensions has introduced green bonds into the NOW: Pensions Diversified Growth Fund. The fund now has approximately 13% of total assets under management invested in green bonds.

Green bonds provide essential capital for projects involved with environmental and climate protection. For example, renewable energies, resource efficiency, environmental friendly transportation, pollution prevention and control, sustainable water and wastewater management and biodiversity. Investments have been made in green bonds issued by KfW, the European Investment Bank and the French Government.

In line with diversified approach adopted by the portfolio, investments have been made in green bonds denominated in GBP, USD and Euro.

Win Robbins, Trustee Director, NOW: Pensions said:

“The NOW: Pensions Investment team has thoroughly researched the green bond market to identify bond issues which satisfy the risk return characteristics that the portfolio is seeking. 

“Encouraging and financing projects which focus on environmental and climate protection cannot be left solely to governments. The green bond market fulfils a vital role for society as a whole, while also benefitting members of the NOW: Pensions Scheme.”

NOW join NEST as master trusts that is backing up what it says by what it does.

Up your game – IGCs

Last year only two Independent Governance Committees (the groups overseeing the investment of insurance company group personal pensions), even mentioned Environmental Social and Governance factors by which they determine the value of their investment default.

Ironically, Standard Life were not one of the two and I mentioned at the meeting that I hoped this would change in 2018.

We should not have to wait until crowds beat down the doors of those who run our pension funds. The role of the trustee and the IGC is reach out to members and test the water – and then to adjust investment strategy to the wishes of members.

This is what Share Action have been doing for some years and I’m pleased to hear that they are about to put pressure on DC fiduciaries to step up to the mark. If we seriously want people to get interested in pension funds, we’ve got to make their pension funds interesting.

I am generally interested in green bonds. I know what poor governance does. For the past two summer , large parts of the Thames were polluted because of major governance failures of Thames Water. Thames Water’s bonds have tanked as a result as investors consider them more risky – less green. As a result , Thames Water is having to pay more for the money they borrow.

If Thames Water’s bonds turned green, the water of the Thames would not. These simple linkages may seem trite, but they make sense to ordinary people. When the Norwegian Oil and Gas fund decided not to invest in oil and gas – people sat up. When HSBC invested future contributions of its massive DC fund in the L&G Future World Fund, people sat up. I sat up and I went and looked at it and I invested half of my DC pot in it.

What’s more, my girlfriend asked me for the brochure and she is involved with another DC fund not dissimilar to HSBCs.

Getting more people to sit up

Much of the discussion that followed the ESG debate was about getting people to sit up and put more money into pensions,

It’s easy to throw money at the problem – paying for people to come into the workplace and explain the value of doing so. It’s easy to tell employers to bump up the contribution rates, it’s easy for Government’s to give away tax to encourage saving.

It is very hard to get people to really take an interest in investment for the future. It is almost impossible to convince people of the value of ALM, DGFs, ETFs and MAFs.

But if you explain, like NEST, NOW, L&G and Aviva are doing, how investment defaults are being managed for social purpose, then you have a chance of capturing the imagination of younger people. That’s what we need to do, we need them to sit up and take interest – for their money will be invested for decades to come and make a real difference.