By Eva Cairns, Head of Responsible Investment, Scottish Widows
The research highlights a growing trend as more employees become interested in how Environmental, Social and Governance (ESG) ‘friendly’ their company pension scheme is – with 60% of employers reporting an increase of employees seeking to understand how sustainability is embedded in their pensions in the past year.
What are employees’ pension investment priorities?
When asked about the top two investment priorities for their pensions, long-term value growth (63%) and financial risk management (41%) were seen as the two most important objectives among employees.
In addition, almost one in five (17%) now also class the environmental or social impact of their pension as a top priority. This rises to a quarter (25%) among those aged 18-34, suggesting employees now want their pension investments to generate positive environmental or social outcomes as well as financial return.
This trend was also reflected when employees were asked which responsible investment tools they believed were most effective for delivering long-term, sustainable returns. Nearly half (45%) said they would invest in companies directly contributing to positive environmental or social outcomes in line with the UN Sustainable Development Goals (SDGs), while 38% would reduce exposure to companies or industries causing harm to the environment or society.
How are employers responding?
Employers are taking a variety of approaches to embedding responsible investment into their pensions. More than half of (53%) are allocating pensions to specific sustainable funds, 46% said they were invested in impact strategies and 45% are focused on investing in companies that are cutting carbon emissions.
Employers also show a preference for active engagement with investee companies and voting (36%), over exclusion policies (20%); both important levers in the toolkit of a pension provider to manage ESG related risks and opportunities.
Eva Cairns, Head of Responsible Investment, Scottish Widows, said: “Providing workers with the opportunity to save for their retirement in a way that delivers financial and societal value in the long-term can only be viewed as positive and we have an important role to play in educating savers about responsibly invested pensions.
“Employers and advisers are now tasked with navigating a critical balancing act: delivering pensions that grow while also reflecting employees’ values. This requires not just guidance but clear approaches, priorities and innovation – for example through private markets, active ownership and investments that support transition leaders and the achievement of the UN Sustainable Development Goals. These are some of the levers available to achieve long-term financial returns with positive sustainability outcomes.”
Bridging the gap
Employees are prioritising responsible pensions, yet many still feel uncertain about their options. Key concerns include a lack of clarity around costs and benefits (25%), doubts about comparable returns (23%), and general uncertainty of funds labelled as 'responsible' (20%). For employers, the vast majority (91%) say they offer guidance on responsible pensions, with 81% feeling confident in their ability to do so effectively. Financial advisers, too, are stepping up – despite 38% noting client doubts about whether these pensions can truly make an impact, 80% feel well-prepared to provide advice around them, and 70% are already doing so.
Yet, with only 11% of advisers reporting client enquiries about responsible pensions, it’s clear there’s work to be done.
Eva said: “Transparency is key; workers want assurance that their pensions are future-proof, both for their retirement and the future world they will retire into. Meanwhile, employers must demonstrate how they have considered responsible investment in their workplace offering, especially their default that the majority of employees will be in. These should be key considerations for employers and advisers as they engage and meet employees’ and savers’ expectations.”
Scottish Widows’ Responsibly Invested Pensions Report
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