I read two articles this morning on the sustainability of pensions, both are short and are free to read. If you have a few minutes read Richard Butcher’ “The future is… consolidation?” in Pension Expert and then read  “Social factors must be at the heart of pension schemes’ ESG strategy”, by Guy Opperman and Nimco Ali in City AM

Despite its chummy style, Richard’s article paints a brutal picture of scheme eat scheme consolidation where the winners will be commercial master trusts that can a) win the most business pitches and b) best engage members. Success is defined in terms of marketing.

Opperman and Ali adopt a diametrically opposed position, arguing that pension schemes

need to adopt investment strategies which deliver long-term value, by considering the risks and opportunities relating to supply chains and communities, employees and business models, local economies and landscapes. Success is defined in terms of social impact.

This is not a strictly fair comparison but for Richard Butcher – as a professional trustee – to argue in an FT publication that

Admin is a hygiene factor: get it right and no one notices, get it wrong and you are in trouble. Same, in a sense, with investment (leaving aside style preferences) and governance.

Shows how far apart policy and commercial practice have become. As with any polarization, reality lies somewhere in between. In writing together with one of Britain’s leading campaigners against violence to females, the Pension Minister is positioning himself in a very particular way which may be considered marketing. In writing an article that only mentions member interests tangentially, the Chair of the PLSA is positioning himself as the devil’s advocate.

Nevertheless, both Opperman and Butcher see consolidation in radically different terms, for Opperman consolidation is about improving member outcomes through undiluted ESG, for Butcher it is a commercial necessity. Many reading this that Butcher’s position is the more honest, but for me it is a misrepresentation of pensions – pensions without purpose have gone wrong.

Pensions and social purpose

Opperman and Ali argue that

While their money is often invested in familiar businesses, those businesses may make decisions and undertake activities that put people’s pension savings at risk. Pensions have huge repercussions for a healthy and stable society.

The article goes on to link causes that most of us would call “just” with the investment strategies that pension schemes could adopt

…economic justice for women – particularly in the economically developing world – is one of the biggest opportunities we have for unleashing a new wave of growth, while simultaneously reducing violence and discrimination against women and girls such as female genital mutilation (FGM) and sexual violence.

The Home Office’s call for evidence on violence against women has just closed but recent events have shown that this is front and center in the minds of almost all women and most men. Any pension scheme that can show that through the way it invests, it has reduced the risks of women being violated, has a higher chance of engaging with members (one of the two differentiators Richard Butcher claims can make master trusts “winners”).

Butcher’s argument is that engagement is about helping member to help themselves to better income in retirement and  Ali and Opperman argue that misogyny in business practice is bad business and devalues investments. It presents a risk to people’s retirement incomes which can be mitigated through properly managing the S in ESG.

Investment – to Ali and Opperman – is more than a hygiene factor in the value delivered by pensions and here I think there is a fundamental difference in the views of the two articles. For Opperman and Ali, pensions without purpose have gone wrong.

Is there evidence of a bridge between social idealism and commercial practice?

I think there is. The success of Pension Bee suggests that organizations that clearly demonstrate their social purpose by the way they organize and promote their investments can be commercially successful. Its  recent announcement that it intends to float on the London Stock Exchange, confounds conventional views that financial organizations can only be valued against Ebitda.

Smart Pensions has recently confounded me by investing nearly 10% of its default fund in an expensive illiquid fund that provides credit to parts of the world economy other investors will not touch. Nest has recently partnered with Octopus to improve the carbon footprint of the energy business. Cushon has focused its value proposition around the impact of its investments by declaring itself carbon neutral from inception.

The capacity of these organizations to stand on their own too feet and not be consolidated is largely due to their taking big commercial bets on social purpose. These bets could in the short term reduce profitability but I don’t see the shareholders of Pension Bee, Smart or Cushon objecting.

Pensions without purpose have gone wrong; pensions with purpose could be “winners” , unlikely as this may seem to some.

If you feel strongly about these issues – why not let your feelings be known. The Government’s Call for Evidence will help increase our collective understanding of what is being done here and around the globe, and what more we can do, to ensure both the risks and opportunities presented by social factors are adequately considered by pension schemes.

You can contribute to the call for evidence via this link

An answer to John Ralfe

You are able to say thisonly because your net worth is very high. What about everyone else? https://t.co/6gYQtijris

— John Ralfe (@JohnRalfe1) March 28, 2021

If we believe in protecting ourselves we should believe in protecting our society and thus investing responsibly.