This five step guide will help you investigate and understand your current occupational pension scheme’s investment policy and discover how you might, as contributor or as a beneficiary, encourage it to take environmental, social and governance (ESG) issues into account.
Step 1 - Research
As a member of a pension scheme, whether as a contributor or as a beneficiary, you have the right to question the scheme’s trustees about the decisions they make on your behalf.
The law requires pension funds to declare in their Statement of Investment Principles (SIP) whether or not they take ESG issues into account when making investment decisions (Pensions Act 1995).
Request the SIP from your pension fund to identify whether or not it has an ESG policy. If the fund does not incorporate ESG into its investment strategy, consider contacting the trustees to ask why.
Going a step further, the extent to which funds formally mandate their investment managers to account for, report on and evaluate their ESG performance is also significant in assessing their attitude to ESG issues. Here are some further questions you might ask your scheme:
- Have the investment managers have been asked to consider the financial implications of environmental, social and governance factors when assessing the risks and returns of individual stocks or other assets/investments?
- Do trustees and/or pension fund managers receive training in relation to incorporating ESG issues into the investment strategy of the pension fund?
- Do trustees receive regular reports from investment managers explaining how ESG factors were incorporated into their risk management framework and normal investment selection process?
- When the overall performance of investment managers is being evaluated, are their skills and capabilities on ESG aspects of the investment process considered?
Step 2 – Support
If you find that you are happy with the ESG provisions made by your pension fund, consider writing to it to show your support and encourage other members to do the same. This will let the fund managers know that their ethical policies are popular with shareholders.
Step 3 - Oppose
If your pension fund provider does not incorporate ESG issues into its investment strategy, you feel its approach is insufficient, or it invests in ways you do not approve of, you should consider writing to it to express this. You might also encourage fellow scheme members to do so too. The organisation FairPensions further suggests that those belonging to a union should try to mobilise their fellow members to improve their pension scheme’s investment approach.
Step 4 – Become a trustee
You might consider trying to become a trustee of your scheme to help shape its ESG policy and practices. A trustee’s primary responsibility is to safeguard the assets of the fund and to act conscientiously in the best interest of the fund’s members.
Trustees also appoint the fund’s investment managers and draft their management terms. The agreements with investment managers that govern investment decisions as well as the Statement of Investment Principles are opportunities for trustees to address ESG matters, to ensure that members are aware of ESG and also to account for members’ ESG considerations.
To investigate the possibility of becoming a trustee, you should contact your scheme directly.
Step 5 – Combine your efforts
You can potentially achieve more change by combining your voice with those of fellow scheme or union members.
You might also consider lobbying for change through organisations like FairPensions, who challenge funds to ensure that the companies they invest in take account of ESG issues. FairPensions regard themselves as a watchdog of pension funds and place high value on transparency in the investment process.
Useful Resources
Retirement Expert
Retirement Expert is a website providing useful advice and tips for people during their retirement. It is a not-for-profit website working in the public’s interest.
www.retirementexpert.co.uk
The Pensions Advisory Service (TPAS)
The Pensions Advisory Service is an independent not-for-profit organisation offering free information, advice and guidance on pensions.
www.pensionsadvisoryservice.org.uk
Pension Helpline: 0845 601 2923
Pensions Ombudsman
The Pensions Ombudsman is able to investigate and clarify any complaint or dispute of fact or law in relation to your pension where The Pensions Advisory Service has not resolved your issue.
www.pensions-ombudsman.org.uk
The Pensions Regulator
The Pensions Regulator may intervene in the administration of your fund where the Trustee, employers or professional advisers have failed in their duties.
www.thepensionsregulator.gov.uk
Civil Service Pensioners Alliance
This is a voluntary body which campaigns, lobbies and acts on behalf of all pensioners from the civil service and related bodies.
www.cspa.co.uk
Notes on using template letters
Templates are given as examples of what you may want to say to your pension fund. For the contact details of the top 100 UK occupational pension click here.
Please amend templates as much as possible; pension funds are more likely to take note of and respond to a personalised letter rather than one clearly downloaded from a template.
