Why should pension schemes be thinking beyond ESG?

How pension schemes can achieve more, by thinking beyond traditional ESG

Why should pension schemes be thinking beyond ESG?

Did you see our latest news article in Professional Pensions? Take a read here.

At Smart Pension, we recently published our commitment to reach net zero by 2040, and to have reduced emissions by 50% by 2025. We aim to achieve these challenging targets by thinking beyond traditional ESG investing. Fundamental to our approach are these three points, through which Smart Pension can achieve more for our savers, and make more of a difference in the world, more quickly:

1. Genuine emissions reduction – a stronger focus than offsetting

We know that the most important factor in tackling the climate crisis is to reduce emissions. That’s why we continue to work with investment managers to reduce emissions across our investment portfolios. We’ve reduced emissions by over 40% since 2019, and we aim to get to net zero by 2040.

It’s really important to us at Smart Pension that our investments actually decarbonise the global economy, rather than simply offsetting emissions. Offsetting emissions has risks and downsides, so we’re working really hard to invest in companies that are innovating to create sustainable agriculture, increasing biodiversity and forestry and focused on stopping ecosystem collapse. We will also favour companies focused on renewable energy and recycling and reusing materials, as well as innovation for good.

2. Impacting the climate emergency through stewardship

With trillions of pounds of assets under management, pension schemes have the power to make a significant impact on the climate emergency. We strongly believe this impact is best exercised through stewardship, in particular voting and engagement, but how can asset owners ensure they are exercising their power to create genuine ‘real world’ change? This is ultimately the goal of stewardship. To drive this we have recently implemented a new voting and engagement policy, which aims to take this further in the master trust market. We realise that focusing on every possible engagement topic can be very difficult, which is why we’ve agreed on specific priority areas. These include the consideration of shareholder resolutions raised by pressure groups such as ShareAction and companies in material PACTA sectors.

In addition, we avoid investment strategies which do not invest directly into companies. We will work with investment managers who have the ability to engage and influence those companies they invest in to reduce their emissions. Some workplace pension providers will say that they have passive funds so can't influence corporate behaviour. But we won’t let this stop us.

We aim to make sure our investments generate attractive financial returns for our members, at an appropriate level of risk, whilst still positively impacting the planet and humanity.

3. Investing in impact funds which help communities and the environment

We are planning to invest in more specific impact themes later this year, which help make a real difference to the environment as well as the communities we live in. This will include investing in projects or businesses that benefit local communities, such as affordable housing, education, clinical research and renewable energy, all of which we also believe should provide a strong financial return for our members. From our research, we think this will get our members more engaged with their pension, helping them to save for their older age whilst creating real world change, in a way they didn’t know was possible.

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About Smart Pension

Launched in 2015, Smart Pension exceeds £5bn in assets under management (AUM) and now serves over one million members and more than 70,000 employers. It is powered by Keystone, Smart’s global savings and investments technology platform.

Aquiline Capital Partners, Barclays, Chrysalis Investments, DWS Group, Fidelity International Strategic Ventures, J.P. Morgan, Legal & General Investment Management, Link Group and Natixis Investment Managers are all investors in Smart Pension.