New campaign encourages members to question their pension investments. Are you ready to answer?

Earlier this week, the film director Richard Curtis launched his Make My Money Matter campaign on a Zoom event featuring Mark Carney, the CEO of NEST and the Chair of the HSBC UK Pension Scheme. The campaign has three asks for the pensions industry:

1. Listen to savers, and explain how savers’ views and values have influenced their investments;
2. Play their part in tackling the climate emergency by making all pension funds at least halve their carbon emissions by 2030, and achieve net zero emissions by 2050 or earlier; and
3. Grow the amount of investment that is focused on having a positive impact on people and planet.

A central part of the campaign is encouraging savers to write to their employer or pension fund, asking how their money is being invested, and what impact it has on people and planet.

Are you ready to answer these questions?

It is always easier to respond to members’ queries if you already have a well-thought-out position on the topic and can highlight actions you are taking. An obvious place to start is the information that’s already in the public domain or available to members on request, such as member booklets, your Statement of Investment Principles, scheme accounts and, for DC schemes, member-friendly information about the investment options.

• However, that’s unlikely to provide all the answers that members will seek, so I recommend you consider how you will answer harder questions such as:
• Is my pension invested in companies involved with weapons, cigarettes, deforestation or child labour?
• How much of my pension is supporting affordable housing, clean energy, vaccine development and essential infrastructure?
• How are you protecting my pension savings from climate change?
• How will my money help the economy to “build back better” after the pandemic?

Page 15 of our recent paper suggests some points you could include in your answer.

I expect many trustees and employers will find these questions hard. You may not have thought about these issues in this way before, instead grouping them under broad headings such as “environmental, social and governance (ESG) factors” and “responsible investment”. If so, I encourage you to dig deeper, starting by putting questions like those above to your investment managers and advisers.

Do you think your members would be satisfied with the answers you receive? If not, actions you could consider are:

• Insisting your managers justify any investments they have in sin sectors or fossil fuels.
• Switching money into funds with strong ESG and sustainability credentials, eg tracking a low carbon equity index or making an allocation to an impact fund.
• Developing a strategy to manage climate-related risks to your scheme, including monitoring relevant metrics and setting targets to improve them (our News Alert sets out expectations in this area).
• Starting a dialogue with members to understand their views on ESG and ethical topics – perhaps running a focus group, holding a members’ event or surveying members.

How far can you go in accommodating your members’ preferences? There are some tricky legal questions and practical difficulties that we explore in Member views: implications for your investment strategy. Nonetheless, I believe there is a large degree of overlap between what members want and what pension schemes can do.

Solutions to real-world problems are a source of good investment opportunities that can provide strong financial returns from which to pay members’ pensions. Considering these types of investments is therefore entirely consistent with trustees’ fiduciary duty to act in members’ best interests. Conversely, investing in companies with dubious practices or unsustainable business models brings unrewarded financial risks that trustees should be seeking to avoid.

A key theme of the Make My Money Matter campaign is transparency. Recent legislative changes require schemes to publish more information on their ESG policies and, for defined contribution schemes, how they are implementing these policies. You should consider carefully the information you are putting in the public domain, to make sure it can withstand the increasing scrutiny from members. I encourage you to go further by communicating this information to members in an accessible way and tapping into their deeply felt concerns about real-world issues, to help them better understand their pension scheme and its investments.