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Pension schemes face more challenges to investments

by LLB Reporter
14th Feb 20 5:46 am

Rules introduced in October 2019 required pension scheme trustees to set out their policy on financially material investment factors, including Environmental, Social and Governance (ESG) considerations.  Yet research conducted by Howden Employee Benefits & Wellbeing (Howden) suggests that very few employers are aware of action taken in this respect.

The survey, undertaken at the end of November, highlights that less than one in 10 (9%) of respondents believed their pension scheme investments are already aligned with ESG thinking and best practice.  Worryingly, more than three-quarters of respondents admitted that either their pension scheme had not yet considered this investment measure (18%), or that they were personally unsure of the current position (59%).

These findings highlight the potential of reputational damage for a company-supported pension scheme and also, by extension, the sponsoring employer too. Howden points to the recent, and widely reported, tribunal case of an Ethical Vegan challenging his employer regarding the pension fund’s investment selection.  The argument centred on the investment of pension scheme monies in organisations involved in animal testing.

Steve Herbert, Head of Benefits Strategy at Howden Employee Benefits & Wellbeing said, “The reality is that the UK public are becoming increasingly aware of Environmental Social and Governance investment issues.  ESG captures a really diverse group of concerns including hot media topics such as plastics pollution, global warming, animal welfare, “gig” workers, and the #MeToo campaign.

“These are subjects that can spark fierce emotions in people.  So it follows that we are likely to see many more challenges to pension schemes with regard to investments that are not seen as environmentally or socially acceptable.”

Howden believes that some employers may understandably view the pension scheme as an arms-length offering, with sole responsibility for investment choices sitting with other bodies such as the scheme trustees or an Independent Governance Committee.  Herbert continued; 

“Employers need to understand that – regardless of where the legally required investment duties may actually rest – there is an intrinsic and very public link between the sponsoring employer and its pension scheme offering in the minds of members, employees, customers, and the media.

It follows that an ill-judged pension scheme investment decision can be extremely damaging for the reputation of the sponsoring employer.  We would therefore urge employers to become more involved in, or at least aware of, their pension scheme’s investment decisions with ESG guidance in mind.”

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