ShareAction judges autoenrolment sustainability credentials

As automatic-enrolment workplace pensions are rolled out to more employees UK pressure group, ShareAction, which campaigns to achieve ‘an investment system that truly serves savers and communities, and protects our environment for the long term’, has produced its first benchmarking survey of the market. The nine leading pension providers in this market were examined and an overall benchmark score was obtained based on environmental, social and governance (ESG) criteria.

Government figures released last year estimated that around  nine million workers will be saving into automatic-enrolment pension schemes by 2018 as the scheme is extended to the smallest companies in the UK.  ShareAction said these savers’ future financial security is contingent on the investment returns delivered by their pension providers. Issues covered by the survey included what the report terms operational themes – governance as well as transparency and accountability; cross-cutting themes such as climate change, nature and human rights and sector-based themes including arms and power generation.

The survey covered three master-trust schemes – NEST, NOW: Pensions and The People’s Pension; four insurance companies with contract-based schemes – Aegon, Aviva, Royal London and Scottish Widows  and two insurance companies with master-trust and contract-based schemes – Standard Life and Legal & General.  The top ranked pension provider was Aviva with a score of  39/80 this was followed by the two Standard Life schemes – its contract-based scheme scored 37/80 and its master trust scored 36/80. Manifest gave all these providers the opportunity to respond to the results of the survey.

Commenting on this score Standard Life said it was “committed to high standards of governance and we are also recognised for our very strong responsible investment capability. The focus of the ShareAction report is on auto-enrolment investments and we have already started to develop an ethical auto-enrolment default investment solution as part of our 2016 plans. Standard Life is one of the only companies in this report that regularly surveys its customers to seek their views on the ethical considerations that are of importance to them.

“We continuously look for ways to improve both our governance and our offering to our customers and clients – the ShareAction report will help to inform our decision-making in these areas.”

NOW: Pensions was ranked 8th with a score of 17/80. Commenting on this the company said, “The practice of ensuring responsibility in investments has been an integral part of NOW: Pensions’ parent company ATP’s asset management for many years and NOW: Pensions’ investment strategy follows these principles.

“The ShareAction report focusses quite heavily on voting rights and disclosure of equity holdings. NOW: Pensions’ investment proposition is based on holding equity index futures and, as a result, we do not have any voting rights. It is therefore difficult to record high scores through ShareAction’s scoring system.

“We are constantly developing our approach to SRI and over time, we will start to consider direct investment into companies which will prompt enhancements to our policies. In the meantime, we are pleased to see that we scored amongst the highest for our scheme governance which we have always prided ourselves on. We are constantly reviewing and improving the content on our website and will look to include something on our approach to SRI.”

Royal London was ranked 9th with a score of 16/80 partly due, ShareAction said, to it not responding to its governance questionnaire and therefore not receiving a score for this.

Lorna Blyth Investment Strategy Manager for Royal London Pensions said, “ We are disappointed to see that the scores for Royal London are so low. We do treat the investment choices available for those in our workplace pension schemes very seriously and Royal London Asset Management, who manage our internal funds, prides itself in being a good steward of our clients’ assets. Our policy continues to evolve and is subject to regular review by us and independent third parties. However, we do require all our asset managers that we partner with to sign up to the UN Principles of Responsible Investment and ask for full details of their RI policy.”

The lowest ranked (11th) pensions provider was The People’s Pension with a score of 4/80. A spokesperson for The People’s Pension said, “The report does not reflect the realities of the People’s Pension with regard to environmental and social investing. The People’s Pension Trustee chooses investment managers that have appropriate and demonstrable environmental, social and governance capabilities/credentials. Both of our investment managers, State Street Global Advisors and HSBC Global Asset Management, are signatories to the United Nations Principles of Responsible Investment (UNPRI) and the UK Stewardship Code.

“The primary reason we have scored poorly on this survey is due to the way we structure our investments. We invest in pooled passive funds through our asset managers. These are mainstream investments used by many UK pension funds. Investing in this way allows us great economies of scale in terms of efficiency and cost, which means we can keep our member charges low. It does mean, however, that our voting rights are delegated to our investment managers. They effectively manage relationships with the thousands of companies our funds invest in, and have the scale, resources and expertise to engage with these companies on ESG issues.”

The survey was conducted through a ‘rules based approach’, based on ShareAction’s belief that financial institutions should expect companies to whom they provide capital to comply with widely supported international standards and initiatives.  The research was compiled based on publicly available information on the providers’ policies, some information supplied to the group by the providers themselves, and a questionnaire on governance that eight of the nine completed.  ShareAction told Manifest that all of the providers were sent their draft scorecard so that they could comment on it and provide additional information and all but one of providers cooperated with the group during the research process.

ShareAction’s engagement team is planning to follow up with each of the providers on the report’s findings and will provide recommendations on steps that they can take to improve their scores on the different criteria. For five of the providers, its outreach team, along with savers from its pension power teams will be engaging with the funds alongside the engagement team. A further benchmarking survey to assess progress will be carried out probably in the next two years.

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