Eight ways to use ESG to boost member engagement

At the end of January, UK pensions achieved a significant milestone. Over 10 million workers have now been auto-enrolled into workplace pension schemes.  As saving into a pension becomes business-as-usual for both employers and employees, one of the next big challenges for all schemes is to help members become more engaged in and involved with their pension savings. 

However, given the complexities and distractions of everyday life, that is far from easy. Trustees and employers have the ongoing challenge of finding ways to capture members’ interest and help them to understand the value of saving for retirement.

Sharing information and success stories on responsible and Environmental Social and Governance (ESG) investment practices within a scheme can be one such opportunity.  Research from YouGov in 2018 showed that 44% of millennials believe that backing ethical firms can drive positive social change. Last year was also a bumper year for ESG funds, with new launches prioritising responsible investment reaching a record high. 

However, pension schemes are lagging behind. According to research from lawyers Pinsent Mason, only 5% of the UK’s largest corporate pension schemes has a policy on climate change. 

Pension schemes that are already considering climate change and ESG issues in their investment strategies can use this to their advantage to engage members and help them see their pension scheme as a force for good – as well as generating returns for the future.  Here are eight ways that ESG can boost member engagement. 

1. Tell stories – There are some golden opportunities to tell bite-sized stories about good ESG practice. For example, pension schemes including the Church of England backed a resolution at Royal Dutch Shell’s 2018 AGM which called on the oil giant to set carbon targets aligned with the goals of the Paris Agreement on climate change. Actions like this can really resonate with members and help them to see their pension scheme as actively making a difference. Many asset managers (including Aviva Investors) work closely with the companies in which they invest to help them improve their working practices and this can also be great information to share with members. 
2. Report on voting – If asset managers working with your scheme or provider actively vote at company AGMs, this can be an excellent way of demonstrating hands-on involvement with the companies that you invest in.  There is increasing pressure both from the Pensions Minister and industry bodies such as the Association of Member-Nominated Trustees to further extend trustees’ voting powers to include shareholder votes in pooled funds as well.  The Pensions and Lifetime Savings Association has also released guidelines that can help schemes decide how to use their vote at 2019 AGMs. 
3. Take members’ views into account when voting – technology offers some innovative ways to break down engagement barriers and involve members more closely in how their schemes are run. For example, it could be possible to use an app to ask members’ views on key resolutions at companies in which a scheme invests. The fund manager could then to incorporate these aggregated views into their position when voting. 
4. Look at best practice – As responsible investing becomes higher-profile, there are more best-practice examples of schemes that are setting standards of excellence. Responsible investment campaign body ShareAction published a review of master trust providers and their approaches to responsible investment, ‘The Engagement Deficit’, in 2018, which shows examples of best practice and areas for improvement across the industry. 
5. Make ESG reporting work for members – From October 2019, trustees must be more transparent about how they are addressing issues such as climate change and corporate governance in their investments. Under these new rules, if they do not take these factors into account, they will need to justify why this doesn’t harm returns.  If trustees are required to be more open about how they invest by law, this is a great chance to share that information with members. That doesn’t have to be restricted to the annual statement – there are many ways to share ESG news with members throughout the year. These could include everything from email bulletins to video interviews with trustees or investment managers and updates in apps or on the scheme website. The more creative and varied the communications, the more likely it is that members will engage.   
6. Get member views – Every member will have a slightly different definition of what ‘responsible investing’ is, so it can be very difficult to formulate investment principles based on individuals’ personal beliefs.  However, for trustees developing their responsible investment strategy, this can be a great opportunity to get members involved through surveys and focus groups. This not only gives the scheme more information about individuals’ responsible investment beliefs, it also acts as a ‘touchpoint’ for getting members more involved in their scheme and shows that trustees are genuinely taking an interest in members’ views. 
7. Align pension scheme investing with corporate goals – In its report ‘Will Employees Benefit? Protecting Corporate Pensions Against Climate Change’, ShareAction explored the responsible investment practices of 15 large DC pension funds. It found that although almost all the companies it researched had corporate plans to address climate change, hardly any of their DC pension schemes reflected the same values.  If employees feel it is important to work for a company that has a strong sense of corporate responsibility, they will want to see that their pension scheme invests in the same way. 
8. Don’t pay lip service – if your scheme isn’t committed to responsible investment, paying lip-service to it could do more harm than good. Many schemes offer an ESG fund as part of a self-select fund range, but that isn’t the same as committing to address responsible investment within the default fund. Similarly, simply telling members that their scheme invests responsibly and takes account of ESG factors doesn’t give the full picture.  Explain why the scheme considers issues such as climate change to be important and what that means for long-term investment returns.