IGCs generally put ESG into their VFM frameworks (this is the Prudential’s) but ESG has no place in the proposed DWP framework covering IGCs and Trustees

The Government’s new Value for Money Framework is aimed at helping trustees, employers and savers make good choices about their DC plans. We have assumed that one of the choices good citizens should be making, is around the way their money help achieve societal goals – most importantly around the sustainability of the planet but also , the improvement our money can make to social good and the good governance of invested assets. In short, we have taken it as a given that our “money should matter”.

But the value for money framework does not reference ESG at all. It is as if ESG is a sideshow that can be ignored when we consider more important things such as the financial outcome of our saving (to us) and the quality of service we receive from our provider.

I was at an event yesterday that touched upon this issue. One panellist thought that having a sound ESG policy in place would “tick a few boxes” on a VFM statement, but as Chair , Nico Aspinall, pointed out, there aren’t any ESG boxes to tick.

Where there may be scope for a reasoned argument for a scheme producing value for money in future is a section in chapter 4 of the VFM consultation

Those familiar with betting on horses will be familiar with TimeForm Ratings and TimeForm symbols

I can imagine a VFM rating similar to a TimeForm rating – though the DWP currently have in mind the more prosaic RAG (red for bad, amber for struggling and green for good).

Maybe the future prospects of a scheme can be explained with a symbol (obviously not with the above explanations).

ESG may also find its way into the Value for Money framework via the backdoor of “quality of service”, most master trusts and several large employer sponsored DC schemes now offer software that can allow members to express an interest in the voting of shares that are held for them by fund managers and their insurers.

Such facilities are accompanied by member communications explaining the social good that their fund is providing and may explain how the trustees are expressing their wishes or even voting their shares (in the rare instances where trustees own assets directly or in a segregated mandate).

ESG may become an element of the member satisfaction rating but when you look at the narrowness of the VFM’s prescription on “communications” (para 121), there isn’t a lot of scope for optimism among ESG enthusiasts.

• Percentage of members who update/confirm their selected retirement date, and how they wish to take benefits, and/or update their expression of wishes; and

• The outcomes of member satisfaction surveys, including the percentage of members who have completed the survey, the Net Promoter Score, and/or member feedback against a small number of standard focus questions.

Why is ESG excluded from the VFM Framework

The DWP are clearly nervous of giving schemes a “get out of jail card” , through a “forward looking metric” which could be used as a “bear with us” message to employers and savers.

And this appears to be the reason that ESG is not part of the framework. The DWP do not want organisations to compete for new business or retain existing business based on ESG promises. Even in the forward looking rating, there is no mention of a strong commitment to ESG equating to better future value.

This is in sharp contrast to current practice, where several master trusts are putting their ESG credentials front and center of their pitches to employers.

I suspect that the reason that VFM and ESG are exclusive is because the DWP has already set in place a means to monitor the progress a scheme is making towards its sustainability goals, The TCFD statement made by the Trustees is supposed to indicate achievements so far and the journey to whatever targets have been selected.

Failure to take the TCFD statement seriously is punishable by fines, public naming and shaming and could prove fatal to a commercial master trust’s future.

I suspect that the DWP decided against “doubling up” ESG into the VFM framework, thus ensuring a clear focus on outcomes based on achieved (historic) performance and measurable metrics on the quality of service.

TCFD is the DWP’s means of authenticating vague net-zero promises over time. If those promises prove inauthentic , then the Government has an independent means of bringing a scheme to heel.

If the VFM framework becomes the way that DC schemes are measured by employers, savers and by Government, then a sound ESG policy will be a “given”, not something that needs to be shouted about.