ESG and The Fun Boy Three

esg and the fun boy three pensions

It ain’t what you do…

Obviously, one would need a smattering of Bananarama for this gag to fully work. But it didn’t rhyme. So, forgive the title being slightly incorrect factually. Because it is all about this:

”It ain’t what you do, it’s the way that you do it”

What on earth am I on about this time, I hear you ask? What has this got to do with pensions? And what exactly is ESG in relation to pension investments?

Here is my attempt to explain. Having an ESG tilted fund or one that is 100% ESG focussed, means that the provider has selected investments (i.e. bought stocks and shares of the big companies) which have a good story in how they operate, relating to:

  • E – Environment – Does the company you are investing in have a good track record in relation to our precious and beautiful planet?
  • S – Social – Does the company also have a good record in doing the right thing in society (think zero hours contracts etc)?
  • G – Governance – This considers the rights and responsibilities of the company at board level in relation to how it manages its affairs – so does the company have good governance?

The result – getting all 3 ESG elements right will make a better company, which will make better investment returns for us – the pension members.

The following events have all recently converged, prompting my blogging fingers to twitch:

  1. I attended the excellent Corporate Adviser Summit, hosted by the ever-brilliant John Greenwood. As well as some first-class technical sessions, the best after dinner speaker ever (Ken Clarke MP) and great networking, I attended 8 workshops run by the major pension providers. I love these moments of genuine CPD. And the overwhelming flavour of them was – ESG;
  2. I (in case I hadn’t mentioned it before) also joined the official Pension Awareness Day (PAD19) tour last month, where one of the feistiest chats I had was with a young male, probably under 30, who was outraged that his workplace default pension fund was invested in companies he didn’t approve of;
  3. I ran a governance meeting recently for a new client, where it was clear that nobody had the slightest clue what ESG meant;
  4. I read an excellent blog on the subject of ESG by Steve Herbert this week;

The young lad I met on the PAD19 tour was VERY impressive. Not only did he know the name of his default fund (around 50% of attendees at workplace events I run do not, just for context – an even higher % for the under 30s – eek!), he had found the fund factsheet (gets a gold star for that too), pored over it, decided that he didn’t have enough information and chased the provider for a fuller breakdown of the actual equity holdings.

It took him weeks of effort. But eventually he got there and this is when he discovered that a reasonable % of his money was being invested in companies linked to the murky industry of manufacturing weapons (his words not mine). He was pretty cross!

We reminded him of the very important nature of non-barrier enablement related to auto-enrolment – meaning that employees need to go into a suitable default initially, BUT that they could then switch (less than 10% sit outside the default of course and apparently, we switch our funds on average, less than every 7 years).

As I said, he was very impressive and told us that he knew about switching, had logged on and made the move to a different fund (that’s another gold star, right there!)

The provider (you will note I haven’t named them and I feel it is wrong to, because I am tarring them all with the same brush here to make a point) had made it hard for this person to fully understand where his money was being invested.

I know the fund he was initially enrolled into – it is a VERY good fund. So, when we look at highly regarded default funds, I can’t help thinking – “It ain’t what you do, it’s the way that you do it”

It is great that the fund is highly rated
It is great that the performance is above sector and near the top of the tables
It is great that there is a fund fact sheet
It is NOT GREAT that simple investor engagement and information is so lacking

And don’t get me started on some of these default funds’ out-dated and inaccessible names!

In reality, the person I met on the PAD19 tour was a perfect candidate for an ESG fund. He was more concerned about E than S and G, which is an entirely different blog subject. But why oh why was his attempt to find out exactly where his money was invested, so painful?

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