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Responsible investment fitted as standard

3 minutes
Kevin Doran
Published May 2024

Kevin Doran

Chief Investment Officer

A laser focus on delivering the best outcome for members with our responsible investment approach

What’s been clear to me during the first few weeks in my new role as Chief Investment Officer is the passion my colleagues share for aiming to deliver the best pension outcomes for your employees.

It’s this commitment to putting customers first that underpins our whole approach. Built on continuously exploring new investment opportunities and a robust approach to managing risk.

There are clearly shorter-term challenges in the investment landscape, like geopolitical conflicts and economic instability. But we’re also mindful of the longer-term challenges – issues like climate change, the just transition to sustainable, secure, and affordable energy and food systems; the degradation of nature, social inequality; and unethical or corrupt behaviours. They pose systemic risks to the whole economy, financial markets and society. So, managing these challenges will be key to helping Britain prosper.

Listening to members

We know many of your employees also care deeply about the longer-term implications of these issues. Our recent poll of pension scheme members highlighted their concerns about a range of topics, from the environment and human rights to supply chain transparency and tax disclosures.

Of course, they’re just as focused on growing their pension pots. And so are we. Our investment approach and customers’ priorities align in wanting to generate attractive returns and manage risk, while also doing the right things for society and the planet.

How we’re responding

We have a well-established responsible investment framework and stewardship policy and already consider environmental, social, and governance (ESG) factors in our decisions around asset allocation, engagement with companies we invest in, fund research and fund manager selection.

But we know we can go further and aim to evolve our approach in line with industry trends and customer needs. We’re currently working on enhancing how we integrate ESG factors into our workplace pensions’ investments to benefit members.

Responsible investing: Working through ESG challenges

As you’d expect, ESG integration throws up challenges. Deciding exactly which E, S and G factors to focus on might seem fundamental, but it isn’t straightforward. From climate and nature to board diversity and human rights, these are the broadest of categories. It’s important to drill down into the finer detail to assess which elements have the best chance of delivering financial rewards.

It may be tempting to focus all our energy on the ‘E’, like companies involved in clean technology and those reducing their carbon footprint, particularly as we work towards our 2050 net zero goal across all our investments. But it’s vital we consider broader social and governance risks and opportunities too. We’re currently identifying key themes we can ‘tilt’ the investments in our workplace pension to, like companies that invest in their employees or those that demonstrate Board diversity and independence.

Getting these decisions right is enabled by data. And that’s where another challenge lies. While there has been some progress on improving data collection, availability and quality in some areas, such as carbon emissions, there can still be issues when it comes to standardisation. That can make measuring and monitoring progress in some areas of ESG particularly difficult.

A swift-moving regulatory environment and the shifting goalposts we see emerging through policy change are further challenges we must navigate.

So, we’ll be ensuring our approach is flexible and able to adapt as the market evolves and data starts to mature.

We must manage all of these challenges because the risks from not investing responsibly, as well as the opportunities available to investors who do embrace ESG, are clear.

While ESG can be an emotive topic, we believe it’s important to have the ambition to create a world that’s worth inheriting. But having a clear head is essential when it comes to integration and stewardship. It enables us to cut through the noise, to better understand where ESG can add value, how to use our influence to help address systemic risks related to ESG and maintain a laser focus on delivering the best outcome for members.

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