- Research finds pension scheme members feel engaged when spoken to about ESG investment.
- Railpen has started a project focused on addressing engagement on sustainable ownership, with mixed results.
- Nest offers members visits to investments such as solar farms, and helps members get visibility on the holdings in their pension.
Investors are increasingly communicating with both corporates and governments to impress upon them their position on issues such as, most notably, climate change. However, engagement with pension scheme members – the ultimate asset owners – has been historically low down on the priority list.
There are some indications this is changing. The UK’s National Employment Savings Trust (Nest) and, especially, Railpen – the £37bn retirement fund for the British rail industry – have been leading the way in educating beneficiaries on sustainability and in identifying their investment preferences.
“It means if there are choices to be made, they can make them accordingly,” says Caroline Escott, Railpen’s senior investment manager for active ownership.
First and foremost is making the fund’s annual sustainable ownership report fit for purpose. The pension scheme aims to make it accessible and relatively short – at 13 pages – and have the document outline how it thinks about sustainable ownership, while “acting as the first point in the education journey for members”, says Escott.
Railpen used graphics and case studies to make it visually appealing, and worked closely with its member communications team to reduce jargon and aid comprehension, employing tone-of-voice standards already tested with its members.
The report goes “back to basics”, explaining how pension savings are really pension investments and that when a member invests they have a stake in a company – “one that they might care about or will have heard about”, says Escott. It also introduces responsible investment, why Railpen does it and how it influences the companies that it invests in.
Railpen also wants members to engage directly with it on the subject of sustainability; it does not want to be communicating at them, Escott tells Capital Monitor. “We want to build a two-way dialogue.”
She adds: “We believe financial returns and sustainability outcomes are directly connected – engaging with members is the right thing to do to ensure we understand their points of view and maintain the trust they bestow upon us.”
To kick off an engagement initiative, Railpen surveyed its members in November last year to establish ESG priorities. It found that around two-thirds (65%) of respondents were familiar with the term “sustainable ownership” while three-quarters admitted they immediately felt more informed on sustainable ownership after taking the survey.
On engagement, 77% of members surveyed thought it was “extremely” or “quite” important that “Railpen tries to influence the behaviour of individual companies to do better on environmental and social issues”.
Not enough visibility
But more is needed. Further surveying of Railpen’s membership on the visibility of its sustainable ownership project shows there is a long way to go. Two-thirds of members polled said they had not seen any communications from the scheme on its sustainable ownership activity and 76% had not seen any of its sustainable ownership reports.
“[With a 25% response rate] we were pleased with the results,” Escott says. “If you can talk about how you are implementing stewardship of people’s savings and how you are influencing companies that they’ve heard of on issues that they care about and you can tell them a good story on that, that is a really good way to improve member engagement overall.”
Additional engagement came in the form of intimate conversations with beneficiaries. Railpen hosted four member round tables facilitated by language and communications specialist firm Quietroom because it wanted an external and objective perspective, says Escott. Two round tables involved members considered to be engaged on ESG, and two were for members not engaged.
There were, however, differences between the results of the member survey and those of the round tables. In the surveys, the most important topics were fair treatment of the workforce, fair pay, climate change and biodiversity. But in the round tables governance emerged as a top concern.
Paul Lee, head of stewardship and sustainable investment strategy at investment consultancy Redington, says Railpen is not alone in this mission: pension schemes want to know about the issues that matter most to them, although few have made it as far as Railpen to find out. “A number of schemes are interested in exploring this and taking if forward, and just trying to work out how best to do it,” says Lee.
It also helps reinforce the perspectives that trustees already have, Lee adds, and gives them more confidence in their dialogue with the organisations they are trying to engage with and change the behaviours of, such as companies, fund managers and the public policy sphere.
Joanna Sharples, chief investment officer of defined contribution solutions at consulting firm Aon, says member engagement is becoming a hugely exciting area.
Providing information on ESG issues engages members, she adds. “In the past we might have spent time talking about investing in equities more generally, but if you can share a case study about a particular company that is making an impact, that is really powerful.”
Nest, the UK’s state-backed £22bn pension fund, has also upped its game on this front. Paul Todd, Nest’s director of investment development and delivery, tells Capital Monitor how it has reached out to its one million members to articulate its responsible investment approach.
“Emails… were spread throughout the year, with some planned at specific times to complement announcements – we sent an email on climate change in September when Cop26 [the climate summit in Glasgow in November last year] was in the headlines across the country.”
Nest has also arranged visits with members to investments. In October 2021, some members toured a solar farm that Nest is invested in. The pension fund has also partnered with Tumelo, a software system, to run a pilot giving members a better understanding of where their money goes.
“It’s important the wider pension industry doesn’t assume responsible investing is the silver bullet that can achieve everything," says Todd. Nest's research found that responsible investment communications built trust and confidence, but was less effective at driving first-time pension engagement.
Very much like what it takes to move governments and corporates to their way of thinking, no doubt.