Government attempts to put the ‘S’ in ESG retirement investing

Tom Selby
24 March 2021

•    The Government has published a call for evidence on how pension schemes account for ‘social’ factors in their investment strategies (https://www.gov.uk/government/consultations/consideration-of-social-risks-and-opportunities-by-occupational-pension-schemes/consideration-of-social-risks-and-opportunities-by-occupational-pension-schemes)
•    Pensions minister Guy Opperman says there are concerns trustees are “ill-equipped to deal with financially material social factors in their investments”
•    Call for evidence comes after Pension Schemes Act brought forward measures to ramp up environmental, social and governance (ESG) disclosures to members
•    Over the past decade the average UK ethical fund has outperformed the average non-ethical fund, and the FTSE All Share

Tom Selby, senior analyst at AJ Bell, comments: 

“Given UK occupational pension schemes have somewhere between £2 trillion and £3 trillion of investable assets*, everyone from Government ministers to environmental campaigners – including national treasure Sir David Attenborough – is laser-focused on boosting the influence this wall of cash has on the way companies operate.

“However, there are concerns the ‘Environmental’ part of ESG investing – and more specifically addressing risks associated with climate change - has been the primary focus to date, with the ‘Social’ and ‘Governance’ aspects hogging less of the limelight.

“Today’s call for evidence is a clear attempt by the DWP to shift that narrative by probing the extent to which trustees are asking the right questions about the social impact of members’ investments.

“While social factors are both wide-ranging and may mean different things to different people, the Government is clear issues ranging from modern slavery to community engagement and public health need to be considered.”

Doing good can be financially rewarding

“Historically there has been a perception that taking into account ESG factors when investing means taking a financial hit through lower expected investment returns.

“But this perception is not backed up by the data. In fact, analysis carried out by AJ Bell last year revealed the average UK All Companies ethical fund had outperformed the FTSE All Share by 40% over a 10-ear time horizon. It had also outperformed the average non-ethical fund by 23%.

“So the drive in the UK towards ESG investing isn’t just about saving the planet – it could also boost people’s pensions in the process.”

*Source: https://www.ons.gov.uk/economy/investmentspensionsandtrusts/bulletins/fundedoccupationalpensionschemesintheuk/october2019tojune2020

Tom Selby
Senior Analyst

Tom Selby is a multi-award-winning former financial journalist, specialising in pensions and retirement issues. He spent almost six years at a leading adviser trade magazine, initially as Pensions Reporter before becoming Head of News in 2014. Tom joined AJ Bell as Senior Analyst in April 2016. He has a degree in Economics from Newcastle University.

Contact details

Mobile: 07702 858 234
Email: tom.selby@ajbell.co.uk

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