What is ESG and how is it affecting workplace pensions?

Most people in the UK will know what a pension is, and a great proportion will have one themselves. But the pension we know today is very different to that of over a century ago. Changes have included the launch of the State Earnings Related Pension Scheme (SERPS), introduction of the Pensions Regulator, and what was probably the biggest initiative, automatic enrolment. 

More recently however, a big change affecting the pension landscape is the demand for sustainable pension options like ESG.  

What is ESG investing? 

ESG considers three factors – environmental, social and governance. These factors are used, alongside traditional criteria, to evaluate potential investments. ESG is not only about what a company manufactures or sells, but also how it operates. 

How is this affecting workplace pensions? 

In October 2019, changes to pensions investment laws and regulations required occupational pension schemes to revise their Statement of Investment Principles (SIP) to include their policy and a statement governing decisions about their investment, including ESG factors, with the statement explaining how their actions follow the intent described in the SIP. 

However, for so many employees, they are still unaware of any sustainable investment options available to them. And this was highlighted in our latest research as only 23% of those with a workplace pension said they were aware if it offered access to ESG funds. 

Despite very few people being aware of ESG pension funds, there is clearly a demand for these options. 63% of respondents said that, in the last 3 years, they had changed their opinion, to some degree, regarding the importance they put on the environment and long term sustainability of the planet.  

So, what more needs to be done? 

Although the responsibility falls on all of us to improve our planet, as an employer there are some things you can do when it comes to workplace pensions. Firstly, it’s important to make any information of available ESG funds easily accessible for employees. A good place to start is helping employees to understand what ESG is and how it could impact their pension.  

It may also be worth contacting your pension provider to see what resources they have about all the funds available to your employees, including any sustainable options. Don’t assume that because they haven’t told you about any that there isn’t any.  

Getting employees thinking and talking about these topics will only benefit them and the planet in the long term.  

We recently conducted research surrounding the latest opinions on how employees feel about ESG and their workplace pensions. The full whitepaper, which includes the latest information on pensions and ESG as well as employee opinions, is available to download here.  

Please note: 

A pension is a long term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Pension income could also be affected by interest rates and currency fluctuations at the time benefits are taken. 

The value of an investment can go down as well as up and you may get back less than you originally invested. 

Secondsight is a trading name of Foster Denovo Limited, which is authorised and regulated by the Financial Conduct Authority. 

Information correct as of 25/07/22