Dale Critchley: How to keep members engaged with ESG investing

Thanks to automatic enrolment the staff pension scheme is now ubiquitous and employee awareness of the need to save is high. Employees know they’ll receive at least a minimum contribution paid into their workplace scheme. Many employees might understand that the minimum is unlikely to be enough, and value the additional contributions offered by employers who prioritise pension saving within their benefit package.

A smaller number of employees will understand how their contributions are invested and a smaller group still will understand that their pension investment has the potential to shape the world they retire into, as well as providing the income they need to enjoy retirement.

Environmental, social and corporate governance (ESG) considerations merely add to the complexity of investment speak for most people. But it’s an area that has the potential to make a real difference to the amount employees have within their pension pots, as well as to levels of engagement with the scheme.

There will be employees across all UK workforces who care passionately about environmental issues. Others might want to see more social cohesion, greater representation and diversity within senior management, or better rights for workers at home and abroad. But how many of these employees realise that their pension savings can be used to promote all of this, and more?

Our journey to improved engagement with pension investments generally starts from a low base. It means there’s a huge potential to make a difference. While automatic enrolment ensures membership, employers should ensure that their scheme’s communications and financial education lay a sound foundation on which we can build understanding. Put simply, employees must understand their pension fund is invested, before they can concern themselves about how it’s invested.

Success in engaging employees used to be measured in terms of the percentage of people who made their own investment choices, but times have changed. The simplest route to achieving a positive impact on ESG issues is to understand the investment philosophy of the scheme provider or trustees who manage the default fund. A large proportion of members, for a variety of reasons, don’t feel sufficiently informed and empowered to make investment decisions. But that doesn’t mean they aren’t, or can’t, be engaged. Adopting a default that manages ESG risks and opportunities can engage those employees who care about the issues, but who don’t want to make their own investment choices.

For those who are confident making their own investment choices, the scheme needs to provide opportunities to invest in funds that align with employees’ values.

Keeping employees informed about their investments is key to keeping them engaged, but some schemes go further. It’s possible to provide employees a voice when it comes to the underlying companies they invest in, through a website or app. As indirect shareholders in a diverse portfolio of companies, employees can make their fund managers aware of their opinion on any shareholder votes. The app used by Aviva staff has recently invited opinion on the use of plastics within a company, executive pay, and workers’ rights within the supply chain of a global brand, amongst a host of other issues.

Employers looking for a cost-effective way to improve engagement, and their return on investment in the scheme, should consider the extent they currently leverage ESG considerations. How does their default solution manage ESG risks and opportunities? Does the scheme offer ESG choices, and are communication opportunities maximised? Once employers understand their current scheme, they might want to work with their advisers to understand their options to improve engagement, alongside the retirement prospects of their employees.

Dale Critchley is policy manager at Aviva Workplace Benefits, Savings and Retirements.