Hubbub probes ESG ahead of provider appointment

Media coverage of auto-enrolment's swing into small employers anticipates a ‘capacity crunch’ as demand surges; on average, 45,000 employers will stage every month this year, according to research on SMEs and auto-enrolment conducted by mastertrust Nest in 2015.

This rise in demand goes hand in hand with fears in the industry that SMEs have not yet awakened to their new pension obligations; many are expected to leave the process to the last minute.

Going against that grain however is Hubbub, an environmental change charity, currently in the process of selecting a workplace pension provider ahead of its November staging date.

We’re a small environmental charity, so for us it would seem completely hypocritical and against all of our personal values if we didn’t go for an ethical fund

Gavin Ellis, Hubbub

In recent weeks, the charity’s nine employees have worked to establish a set of key criteria and objectives they hope can be met by the arrangement that will ultimately be put in place.

Hubbub’s wider values centre on creating a more resilient and environmentally conscious society, and Gavin Ellis, co-founder of the charity, said employees want to reflect these values in their pension arrangement.

Last week employees used responsible investment campaign group ShareAction’s defined contribution provider ESG ranking as a springboard for discussion about which provider was the best fit for Hubbub.

Ellis said employees “don’t want to invest their money in a way that isn’t ethical and transparent”.

“We’re a small environmental charity, so for us it would seem completely hypocritical and against all of our personal values if we didn’t go for an ethical fund.”

Costs both to the charity and the individual along with the level of administrative burden will also be factors in Hubbub’s final decision, as the charity currently outsources all finance and administration functions.

“It’s a pay-off between going with a pension fund that is as admin-light as we’d like it to be, but also as ethical as we’d like it to be,” he said.

Provider practice

ShareAction’s latest report on the behaviour and practice of DC providers as responsible investors ranks the UK’s nine largest providers against a matrix of ESG factors, including transparency, accountability and investment ethos.

Topping the bill in aggregate was contract-based provider Aviva, while government-backed mastertrust Nest ranked fifth; the People’s Pension scored lowest against ShareAction’s criteria.

Paul Todd, director of investment development and delivery at Nest, said the mastertrust believes responsible investment supports better outcomes for its members.

‘We’ve focused on these issues since our launch... one of the reasons ShareAction chose Nest as its auto-enrolment scheme,” he said.

“We’re looking at ways to improve and this spring we’ll publish our first responsible investment report. This will outline our approach and share the outcomes of our work on crucial issues like climate change.”

Catherine Howarth, chief executive at ShareAction, said providers performed well in different areas, but there was no one body that excelled across the board.

“If you put the best of what different people are doing across the whole industry in one pension fund you’d actually have a pretty cracking provider, but unfortunately everybody falls down on something,” she said.

“In each area, someone is doing ok, which shows it can be done.”

There is “enormous potential” for providers to radically improve their performance around the criteria, Howarth said, adding the hope that competitive forces in the market will bring this sea-change in the next few years.

“Clearly in the first stage of auto-enrolment, a lot of employers have been thinking from a very logistical point of view, ‘How does this fit in with my pay roll structures? What is the lowest cost way of doing this?’,” she said. “But I think we will begin to see a new phase where employees and what they want will become a more important factor of consideration in the minds of providers.”

Market demand

Richard Butcher, managing director at professional trustee company PTL, said providers and trusts will only improve transparency and adherence to ESG factors if the market demands it.

“There is no requirement for them to disclose their ESG position or the impact that they have in the environment in which they exist, and until there is a requirement for them to do that I expect that most won’t,” he said.

“It’s not particularly a lack of transparency – it’s a lack of requirement. If the market demanded it then they would disclose it, but do I see the evidence that the market will demand it? No.”