Two in three employers expect ESG options in company pensions

A growing number of companies expect their workplace pension scheme investments to take account of environmental and other sustainability factors.

In a survey by HR consulting, technology and administration services firm Buck, two thirds (67%) of employers said that they expect their defined contribution (DC) pension schemes to offer environmental, social and governance (ESG) investment options. This is an increase from just 28% who expected ESG criteria to be included in 2018.

What's more, 44% said the default fund should incorporate ESG principles, and 60% said that members should be able to choose investment options which reflect their religious or social beliefs.

This shift in attitudes towards DC pension scheme investment reflects a wider change as companies continue to develop their corporate social responsibility policies and seek to promote a culture that embraces diversity, equity and inclusion, Buck said.

The UK has been one of the fastest countries in the world to adopt the recommendations of the Taskforce for Climate Related Financial Disclosures (TCFD), which has also played a part in sharpening the focus on ESG matters.

"Support for responsible investment has strengthened significantly, up from 28% of respondents in 2018 to 67% in 2022," said Mark Pemberthy, benefits consulting leader at Buck. "It's encouraging to see that workplace DC pension schemes in the UK are taking steps to reflect this changing sentiment."

Awareness is rising

Among employees and the general public, campaigning by organisations like Make My Money Matter, co-founded by Richard Curtis, has helped to raise awareness of how pensions may be invested in companies that do harm, supply chains that are unsustainable, and industries that accelerate climate change.

"Greening" your pension is 21 times more effective at reducing your carbon footprint than giving up flying, going vegetarian and switching energy provider combined, the non-profit group says.

Employee engagement boost

Ensuring that your workplace pension scheme incorporates ESG principles can also help to drive a higher level of employee engagement and retention.

More than four in five employees feel engaged in their workplace if their employer cares about having a positive impact on the environment, according to recent research from employee engagement consultancy Inpulse.

Inpulse surveyed 35,000 employees and found that, of 80% working for companies perceived to be environmentally conscious, 82% felt engaged in their workplace compared to 35% who felt engaged working for companies that do not pay attention to their ESG strategies. This gap represents the highest percentage point difference when it comes to factors impacting employee engagement, followed by career development, inclusion and culture.

"While more 'traditional' engagement factors -- like culture and development -- remain highly relevant, we cannot ignore the significance of how people's perceptions of environmental and social responsibility impact their feelings about their work," said Jodie Harrison, insights consultant at Inpulse.

"Understanding what people expect from their employers is essential. Ensuring they can then work towards that criteria is key to retaining talent and minimising disruption caused by high levels of attrition."