Mastertrusts would do well to focus on investing in accordance with environmental, social and governance principles, says Nest's Paul Todd.
Many schemes have started thinking more broadly about how the companies and markets they invest in are run, how they generate profits and how they treat people and the planet.
By representing members’ interests when using their ownership rights, mastertrusts can also contribute to the growth of their pots
Our first responsible investment report, 'Working for change', outlines our responsible investment activities and why we take an active role when it comes to investing money on behalf of members.
Establish the right objectives
Considering environmental, social and corporate governance risks and opportunities, combined with being an active, responsible investor, is a way of making the most of members’ investments. By representing members’ interests when using their ownership rights, mastertrusts can also contribute to the growth of their pots.
The launch of auto-enrolment in 2012 marked the start of a revolution in share ownership and investing for the UK. Millions more people now have a stake in companies and markets around the world for the first time.
Mastertrusts should work on behalf of members to support these companies and markets to perform well over the long term, as well as to be vigilant asset owners – and transparent on what this means in practice.
Four principles guide responsible investing
Given our mission, Nest created four key objectives that guide and prioritise our activities as a responsible investor:
Better risk-adjusted return: Target an improvement in ESG performance where there is evidence that doing so can lower the amount of risk needed in order to achieve a return.
Better functioning markets: Improve how markets operate and are regulated in jurisdictions where we invest.
Support long-term wealth creation: Encourage the companies we invest in to deliver sustainable and stable performance to support good returns for our members over many years.
Manage reputational risks: Protect Nest’s reputation and increase our members’ trust by encouraging companies to act in ways our members can feel confident about.
Companies that are not properly run, or do not consider the environment or people in a way our members would expect, damage how they are seen. This can in turn affect how members feel about investing.
Mastertrusts should take an active interest in where members’ money is invested. With a growing focus on responsible investment, it will become more and more important for schemes to be guided by their own ESG objectives.
Paul Todd is director of investment development and delivery at mastertrust Nest
