In an astonishing report “Navigating ESG – a practical guide”, the teams of the Defined Contribution Investment Forum have delivered a major contribution to our understanding of what “responsible investing” is, who wants to do it and how we can talk about it as part of our workplace pensions.
I have noted in recent reviews of IGC Chair Statements, how much progress has been made in recognising “ESG factors”, but this report takes things to another level. In particular, the work of Janette Weir on the “member perspective” stands out. At present I have no digital copy, but will post it as soon I can.
In the meantime, here are Janette’s key findings. (Base 1061 UK adults aged 22-65)
What is even more surprising is that support for responsible investing is spread over all age groups.
We were shown a number of vox pop videos at the launch of this document last night and very revealing they were. Clearly most people have not thought about their pension investment as something they have any say in, one thought that pensions invested in “pensions”. When they were asked if they would like their investments managed responsibly, they were shocked at the question. Not only did they want this, they assumed that that was what was happening and shocked when they were told this was not the default state of affairs.
When shown a statement from a (fictional) statement of investment principals – in which the trustee stated it would not engage in responsible investment, the trustee was accused of “copping out” and being “lazy”. We were told that one person interviewed was so angry that she got in touch with her workplace pension to complain.
The law makers are listening
I was very glad that David Farrar of the DWP was not only in the room but on a panel. I was even gladder that he spoke of the DWP’s new project – instigated by the Law Commission, to consult on responsible investing as part of its work on workplace pensions. If the consultation is as to the point, as Farrar’s remarks last night, I will certainly be responding.
Farrer was particularly good on the need of those who have oversight, not just to have a statement of investment principles that is in itself “responsible”, but that insight is followed up and findings published. There can be no box-ticking on this subject.
What’s in a name?
In an important contribution to last night’s launch, Rhys Williams of Quietroom explained how the DCIF had simplified their subject matter by entitling it “responsible investing”. The report itself , still has ESG on every page, but in promoting the simple idea of “responsible investing”, they may have at last established a brand for what is going on that will resonate with workplace pension investors.
In my experience, albeit mainly through the lens of share action, people are deeply serious about responsible investing. They see recycling as an activity of daily living, thinking about packaging , the use of straws and the like is business as usual.
So the comments in the room about why anyone would want to invest anything but responsibly, led us to the inevitable conclusion that the default position of any workplace pension, will be to invest responsibly – why would you not?
Removing the “socially” from the SRI tag – returns the argument to popular debate and removes it from the minority interests group who may have created a “socially responsible” bubble!
I will speak of SRI , ESG and sustainability going forward as “responsible investment”.
Putting your money where your mouth is
I have made my position clear, my default investment – the one where 100% of my workplace money is invested is Future World. I am not alone, the RSPB have switched to L&G’s Future World fund as its default and most famously, so has HSBC Bank (who were represented at the event last night by the Trustee Chair).
I have challenged those in my own consultancy, and in consultancy LCP, to explain their personal positions on responsible investment, not in words but actions! I want to know how green are their pensions! I want to see L&G introduce a Future World version of its multi-asset fund, for those who do not want a 100% global equity approach. Bonds can go green as well! Properties can be managed in a green way and we can have responsible behaviour in the management of alternative assets!
Value for money
Clearly , any assessment of value, must now consider the responsibility with which the money is invested. There was talk last night of kite marking funds, but I think we need providers to be kite marked. I would certainly give a kite mark to L&G, NEST and Aviva but I’m not so sure about others. While Peoples Pension talk a great story, I see no evidence (yet) of responsible investing for their members (we’ll leave it to Nico!).
I take the IGC statements as a proxy for the real commitment of workplace pension providers (though only a proxy), and I feel that the IGCs have a long way to go.
If we are to get to a proper system of scoring VfM, we must work out where the value is being generated or not, and make sure that responsible investment becomes a factor in the score itself. Only then can we say that we are measuring responsibility in an integrated way.
I had until now, considered the DCIF a “head in the air” organisation , populated by fund managers keen to get their feet under the workplace pension table.
Last night and the report sitting in front of me – changed that.
Well don and thanks to the DCIF , to Louise Farrand and to all who made the DCIF annul event – so memorable.