Saker Nusseibeh, CEO of Hermes Investment Management, and member of the UK National Advisory Board on Impact Investing explains why the Board is calling for UK pension funds and employers to make social pension products an everyday feature of the country’s investment landscape.
What is the UK National Advisory Board on Impact Investing?
The current UK National Advisory Board is composed of senior and visionary leaders connected to the impact investment sector but also to others areas of finance, business, philanthropy and/or government
Our mission is to build an inclusive and sustainable economy at scale, by making measurable impact a regular driver of investment and business decisions. We are members of a Global Impact Investment Steering Group aiming to develop a global impact investment agenda, alongside 12 other countries plus the EU. Hermes Investment Management is a member of the Board.
See more information on why social pensions matter and the impact they can have on organisations in Good Pensions.
More on how these funds could work in the UK can be viewed online at Big Society Capital’s Designing a social pension fund for the UK.
How we invest our money has implications for society and the environment, and investors are increasingly taking notice. On pension funds, some progress is being made in considering environmental, social, and governance (ESG) factors in their investment strategies through good stewardship, as BITC has noted and encouraged through its Investor Project.
At the UK National Advisory Board on Impact Investing, we think pensions can go further, and still achieve highly competitive returns. One way to do this is through a ‘social pension’ product.
In these, in addition to best-in-class stewardship, a modest proportion of total assets – around 10% - is directed towards impact investments, which have an explicit objective to address social or environmental challenges, as well as realising risk adjusted financial returns.
A tested model
Savings products along these lines are not new. They have already been successfully launched and scaled in the French market, where since 2008, all employers over a certain size (~50 FTEs) must offer a “Fonds Solidaires” option as part of their employee savings schemes. Demand for these products has increased significantly, with over 1.5m savers and around €9bn in assets now invested in this way.
But the UK is falling behind. With over £300 billion in assets under management in the UK, direct contribution pension schemes in particular represent an enormous yet currently untapped opportunity to channel more capital into social investment, and in turn build a more inclusive and sustainable Britain.
We see growing evidence of employee appetite for investing their money in a way that goes beyond just seeking financial returns. For instance, a recent survey by PWC found that 61% of Britons over 18 agree that it is important that people use their money for the good of society, and around 50% would be interested in making social investments.
As well as enabling employees to invest in accordance with their values, we see social pension products as benefiting the companies that offer them. Such pensions would represent a differentiated employee benefit, not simply a cost, increasing staff engagement and potentially helping as a recruitment and retention tool. That’s alongside demonstrating to customers your deep commitment to delivering not just for shareholders but for society as well.
What can you do?
To make social pensions a reality, and so channel more capital into addressing social and environmental issues, as well as benefiting companies and pension funds in the UK, we need to build further momentum in parallel across both the demand and supply side of the equation. You can help us achieve this.
If you are a pension provider, we ask you to address the market need through developing social pensions products that include:
An allocation to impact investments in the UK and globally
Accessible and engaging reporting to savers using the product that sets out the impacts achieved both through impact investment and through socially committed dialogue with companies
Regular opportunities for savers using the product to feed in their priorities and top social/environmental concerns
If you are an employer, we ask you to consider offering a social pensions option to your staff in the future. But right now, you can helps build momentum in the sector and stimulate the supply side by providing us with an expression of interest in offering social pensions. Having this evidence will allow us to showcase the collective corporate interest out there to pension funds, regulators, companies and employees.
You could also demonstrate demand by surveying your employees on their interest, and we would be happy to provide you with a questionnaire that you can use for this.
If you would like to help us in either of these ways, or find out more about social pensions, please get in touch by emailing email@example.com, and we would be happy to discuss any of the above, as well as the latest on what products are becoming available, and how they could work for you.