Could ESG improve scheme engagement?

Aegon's recent survey of around 10,000 UK residents shows that most pension investors care deeply about the environment and their world's future. It also suggests that the more someone's investments are helping the climate emergency, the more likely they are to be happy about their investments and be better engaged with their pension arrangements. But too many customers remain unaware of how and where they're invested.

Pension funds are becoming increasingly important in the fight against the climate emergency, driven by growing demand from customers and regulatory change, making environmental, social and governance (ESG) criteria increasingly influential for pension investments.

Our survey shows these changes offer an opportunity to encourage more meaningful connections between employees and their workplace pension savings, improving their financial wellbeing in the process. To do so, employees need better support to help them understand the role their savings can play in supporting a fairer, more sustainable society and, by delivering this, employers and providers could improve scheme engagement.

Our study

Our research to understand the factors that impact financial wellbeing highlighted the growing importance of responsible investment.

ESG issues are a concern for the majority, with 72 per cent concerned about environmental issues, 61 per cent worrying about inequality, and 65 per cent concerned about poor corporate governance. But while 80 per cent recycle and 47 per cent avoid single-use plastics, only nine per cent see their pension savings as a way to support a more sustainable society. 

A mismatch between intent and action

Our research also revealed a mismatch between people's intent to invest sustainably and their actual choices. 57 per cent believed some of their savings should be invested sustainably - but only 31 per cent did so. Significantly, 50 per cent didn't know how their savings were invested, and 32 per cent were unsure about how they wanted to invest.

People often act differently to their stated beliefs and behaviour when it comes to their pension savings. This may be through a lack of awareness or confidence about choosing investments, or because pensions simply don't seem pressing priorities.

The joy it brings

For those whose investments do consider sustainability criteria, the greater the proportion they hold, the more likely they are to feel happy or purposeful about their savings. 77 per cent of those investing all their savings sustainably feel ‘joy' or ‘purpose' as a result.

Savings ‘joy' or ‘purpose' by % sustainably invested:

What does this mean for scheme engagement?

Our research suggests that helping employees understand how their savings improve sustainability could also improve scheme engagement - something many schemes have long struggled with. And there are ways employers can help.

Visualisation

Visualising long-term ideas like pension investing can be hard, so starting with how your employees feel and act today could help. Rather than using technical ESG information, we need people to think about their savings alongside near-term choices like recycling. We as an industry should approach this with 'did you know your savings can support your beliefs?' -  not 'let me tell you how it works'.

Navigating complex language

55 per cent of people aren't aware of, or don't understand the terms ‘responsible investment', ‘sustainable investment' or ‘ESG investing'. Jargon around ESG investing should improve, driven by regulatory and industry initiatives, but for now we should ensure that communications with members use clear, consistent language.

Communicating default fund changes

It's also likely that many employees aren't aware of changes happening to default funds, like Aegon's commitment to net zero carbon emissions for default funds by 2050, and halving emissions by 2030. We will have moved over £15bn of default savings into strategies that consider ESG factors by Summer 2022 for example. Clear communication of fund changes to employees will help establish a connection between their savings and supporting sustainability and social issues.

Myth busting

Our research found that 35 per cent of people say they would accept a lower return from sustainable investments, indicating they think you must sacrifice returns to invest in line with your beliefs. This goes against the now-mainstream industry thinking that sustainable investing leads to more robust risk management and should help generate good long-term returns. While there are no guarantees of this, it is worth highlighting to help debunk myths that responsible investing will negatively impact returns.

A positive outlook

Over the long-term, investing sustainably can have a positive impact on both the world around us and people's savings. The actions we're collectively taking will have an even greater impact if we can also improve engagement with scheme members - and our research suggests that there's an opportunity to do so.

The value of investments may go down as well as up and savers may get back less than they invest.

Find out more about Aegon's commitment to sustainability and how we can help employers communicate with employees on our Responsible investing hub.

This article is sponsored by Aegon.

Aegon's research conducted with 10,021 UK residents by Aegon's Centre for Behavioural Research. August and September, 2021. The joy and purpose findings/ chart is based on the views of a subset of around 3,000 investors who said they held a proportion of their savings in sustainable investments.