Why is investing sustainably important?
A pension is a powerful tool. The savings your employees squirrel away have the potential to make a real-life impact for their lives now and the future. But only if it’s being managed in the right way.
It’s no secret that well-run organisations with sound environmental and social practices have a better chance of long-term success and profitability. In other words, we should be thinking about things like how companies and markets operate and how they treat people and the environment. As many of your workers will be saving for their retirement for decades, lots of these issues are likely to have a material impact on the performance of companies and other assets their money is invested in.
Take climate change for example, one of the largest environmental and socio-economic threats worldwide. It could make businesses and our economy less profitable and in turn shrink pension pots. Workers could also retire into a vastly different world, facing higher food costs, extreme natural disasters, and pollution-related health issues. It’s now vital that profit is delivered for members, without costing the planet.
Having billions invested in companies gives investors like Nest the chance to have a say in how they are run. We want the companies and industries we put your employees’ money into today to continue to make money for them tomorrow. But we also want them to contribute towards a future all of us want to retire in.
It’s clear that your employees’ money has real life impact. And with an estimated £1.3 trillion assets under management in the pensions sector, comes a great power to influence companies from the inside.
Studies show that investing responsibly can beat the market[1]. We’ve seen this theory put to action through the Covid-19 pandemic, where most companies faced tough conditions. Responsibly invested funds which put more money into companies that took environmental, social and governance risks (ESG) into account outperformed traditional investing in recent years.
For Nest sustainable investment is at the heart of everything we do, it’s the foundation on which our investment strategy is built. From voting on and engaging with the companies we invest in, to working together with fund managers, key stakeholders, partners and organisations which allows us to be more effective when acting on issues that matter to our customers.
With voting season in full swing, we get the opportunity to have our say and ensure sustainable practices are encouraged at every step. We aim to support company management to do the best they can for their stakeholders, but we also hold them to their word. We use voting season to either support companies in setting net-zero strategies or register our dissatisfaction with their progress.
For example, this year, we wrote a letter setting out our concerns, as an investor, in relation to Shell’s climate change strategy. We believe we can use our role to highlight how the wider industry should be taking action – this isn’t just about Shell. There are oil and gas companies in our portfolio who aren’t doing enough to seriously transition their business and we hope they take note. We will continue to scrutinise companies’ plans and we will be voting against directors at companies that have not published a credible and robust strategy for managing climate change risks.
We’ll continue to work hard to ensure our sustainable investment strategy grows with us and for your employees, because profit is nothing without a planet to enjoy it on.
[1] Sustainable investing – the real advantages according to MSCI (dws.com)