How would extending the remit of IGCs to cover SRI boost outcomes?

The distinction is helpful in differentiating the risk-driven action of ‘saving’ from one that promises deferred gratification – ‘spending’. For most people spending is more pleasurable than saving; the idea of “spending on retirement” consequently seems more engaging.

Would policyholders be more interested in spending time on their pensions if they had a clear social purpose?

Risk or value enhancer?

The Financial Conduct Authority is considering extending the remit of independent governance committees to include social investing, following recommendations from the Law Commission in 2017.

Should the FCA be approaching this issue from a risk perspective, or should it be encouraging IGCs to be promoting responsible investing as a value enhancer?

This is much the same question as whether you are saving for a rainy day or spending on a sunny retirement.

A 2017 study by Schroders found 78 per cent of investors surveyed across the world said sustainable investing has become more important to them than it was five years ago.

Despite this, there is little information available to inform savers on how their pension is invested; research by the UK Sustainable Investment and Finance Association last year has shown 76 per cent of the UK public with a pension do not know how much, if any, of their pension is invested ethically, and 30 per cent believe they do not have a say in how their pension is invested.

Turn these numbers around and organisations such as ShareAction argue that, if workplace pension providers and their fund managers were judged on their ESG disclosures, policyholders would not just be more interested, they would be more discerning.

Striking a balance

Defined contribution investors have the scope to deliver patient capital to the market. Con Keating, head of research at covenant insurer BrightonRock Group, has recently argued that the extended time horizons of DC claims mean investments can be judged not on short-term performance measures, but on their longer-term utility.

ESG measures might be better ways of judging value than a short-term focus on performance. Certainly, a balance is needed between a quantitative analysis of recent results and the capacity of a fund to deliver good outcomes over time.

In this sense, what members see as important (responsible investment) and what IGCs measure value by could be better aligned if the FCA’s possible changes on responsible investment are adopted.

Value is of course only part of the equation. If the cost of investing a workplace pension responsibly is considerably higher than not, then the value for money arguments are diluted and the commerciality of a workplace pension compromised. It ill behoves a sustainable investment to threaten the sustainability of a pension provider.

IGC ESG reporting is moving in the right direction

In their 2017 reports, published April 2018, almost every IGC addresses responsible investment. The reporting is yet to be integrated with the IGCs’ value for money analysis and is of variable quality, with much evidence of cutting and pasting from prepared statements from providers. But this is an improvement from previous years and clearly signposts the direction of travel.

A consistent theme of IGC reports since their inception in 2015 has been the difficulty IGCs have found in getting policyholders to engage either in their workplace pensions, or indeed the IGC reports.

Perhaps they too should think of Victoria Derbyshire’s distinction. Would policyholders be more interested in ‘spending’ time on their pensions if they had a clear social purpose? Today most people seem to be ‘saving’ time – ignoring the reports altogether.

Henry Tapper is business development director at consultancy First Actuarial. His work collating and reviewing the 2017 IGC reports was used to help organisation ShareAction in its report on how effectively and transparently IGCs reported in 2017 on their work protecting the interests of scheme members.