At Nest, investing responsibly is at the heart of everything we do – it’s one of our core investment beliefs.
We firmly believe that companies which are appropriately managing key risks and consider their workers, customers, wider community and the environment, as well as how they make money for their shareholders, are more likely to succeed over the long term and make our members more money. This is because we think they will be better placed to adapt and thrive in changing times. And that’s the key – we want the companies and industries we put members’ money into today to continue making money for our members tomorrow.
That’s why we have a dedicated team at Nest to make sure our members’ money is being managed in a responsible way. The role of Nest’s responsible investment (RI) team is to develop and work on the implementation of our RI strategy alongside our fund managers.
There are risks we want to manage relating to how investments impact the environment and society, and how companies are managed. With so many, we must prioritise the key ones to ensure we can have a real financial impact.
Here are our current environmental, social and governance (ESG) priorities explained.
Climate change
Climate change is one of the biggest risks facing society. Both the physical impacts of a sustained rise in global temperatures such as more frequent extreme weather events, and the economic impacts of transitioning to a low-carbon economy will affect the investments we make on behalf of our members. Over the next few decades, climate change risks could impact our members through lower returns on their retirement savings and a lower quality of life in retirement.
Our aim is to address the potentially catastrophic impacts of global warming and identify how investments, workers, and communities can benefit from the transition to a low-carbon economy.
As well as continuous investment in green infrastructure projects and aligning our portfolio with reaching net-zero emissions by 2050, earlier this year we published our climate change roadmap, which specifies short, medium and long-term steps we’re taking to achieve our climate change related targets.
Human capital
We believe companies that treat their workers fairly are more likely to have improved productivity, reduced staff turnover, and be more competitive. It’s a key reason for us to understand how well they treat their workforce. A well-treated, fairly paid workforce is more likely to have higher staff morale and satisfaction, making a company more likely to be successful and profitable in the long term – a good investment for our members’ money.
In 2021/22 we got involved in several human capital related initiatives, one of them being the ShareAction-led Good Work Coalition, which encourages companies to pay their workers the Living Wage and provide set working hours.
Cyber security
Cyber-attacks and data security breaches can have major impacts, inflicting substantial damage to a company in the shape of fines, loss of consumer confidence and revenues, and reputational harm. Markets are quick to punish companies that have suffered security breaches, making cyber and data security an important factor in our investment decisions.
We engage with companies at high risk of attack, encouraging them to step up their security and avoid the potential damage to their organisation and our members’ investments.
Digital rights
Digital rights are an extension of human rights. As technology and regulation rapidly evolves, companies must move quickly to safeguard freedom of expression and be accountable for the spread of disinformation. The unchecked power of technology companies has eroded respect for users’ digital rights by contributing to the spread of misinformation and hate speech, increased levels of surveillance including that which enables attacks on democracy, the censorship of dissident voices, and discrimination against marginalized communities through artificial intelligence (AI) and algorithmic bias.
Nest joined the Investor Alliance for Human Rights engagement initiative, organised to ensure Information and Communication Technology companies protect digital rights in their business activities, products and services. Throughout the engagement process, we encouraged companies to publish and implement strong human rights policies and give users meaningful control over their data.
Diversity
We believe promoting diversity of gender, ethnicity, and thought can improve company performance and reputation as well as enhance socio-economic conditions for many people. Diversity is much more than a social, political, or moral issue – it has clear business and financial implications.
Companies that don’t pay close attention to their hiring and development programs risk:
- failing to make use of broader talent pools
- fostering a leadership culture that may be narrow-minded, leading to worse business decisions
- having a workforce that doesn’t reflect their customer base
- negative media coverage and public perception
All of these could have a negative impact on their bottom line and our members’ investment in them.
As a result, we have well-established processes to benchmark diversity and inclusion within any fund managers we work with. Additionally, we recently developed a diversity reporting toolkit in partnership with the 30% Club to help companies understand what good reporting of diversity and inclusion targets looks like.
Food
Food production and retail is a complex system with wide ranging impacts. Not only does it have an impact on global carbon emissions, it also impacts our health. This has led to an increase in potentially loss-making government regulation to tackle issues like obesity. We believe this is a systemic risk that affects workers across the whole economy. Changing regulations and consumer preferences in response to this health crisis have increased risk in the food and retail sector. These impacts may lead to significant and abrupt policy responses by governments and changes in consumer behaviour which pose risks to producers and retailers’ current business models, and in turn our investments.
We continue to educate ourselves to understand the strategies companies have in place to ensure they’re evolving in line with upcoming regulations. Last year, we engaged with six of the largest fast-food brands on sustainable meat sourcing. The aim was to urge them to analyse and reduce their vulnerability to, and impact on climate change and water scarcity and pollution.
If you’d like to learn more about our responsible investment work and specific projects we have been involved in in 2021/22, make sure to read our latest responsible investment report.