Data crunch: Broadridge’s Hal La Thangue examines the growing prominence of ESG in defined contribution, and reveals a concurrent increase in the wider principle of ‘doing good’ in pensions.
Pressure is coming from multiple angles as both the Financial Conduct Authority and the Pensions Regulator force schemes to disclose how financially material environmental, social and governance factors are built into investment decisions, while the influence of groups such as the Task Force on Climate-related Financial Disclosures continues to grow. Scheme members are also searching for investments that align to their personal views.
Much of the attention has focused on pure play asset managers, and the immense efforts to improve disclosures and product availability so that schemes can meet the growing regulatory burden. But in the burgeoning defined contribution landscape, fiduciaries themselves are also considering ESG credentials seriously when choosing their providers.
A recent Broadridge survey asked respondents about the importance of ESG integration in the investment process when selecting a provider. The data revealed that most schemes consider this to be an important criterion, sitting at 77 per cent of respondents.
It also emerged that ESG is particularly salient among mega schemes, which have 5,000 or more members. This may be because these schemes have greater resources, allowing them to fully engage with ESG considerations, or it may simply be a product of the greater scrutiny that some larger sponsors have experienced. 
However, incorporating ESG in the investment process alone is not enough to address the needs of schemes. Pension fiduciaries also ascribe importance to the corporate social responsibility profile of the provider, with 72 per cent of Broadridge survey respondents signalling this.
While this issue receives much less attention than ESG integration, it appears to matter to almost the same proportion of schemes. Once again, there appears to be a slight correlation between the size of scheme and the importance ascribed to CSR, but it is notably less pronounced. 
CSR is a broad church incorporating everything from philanthropic initiatives to environmental practices. Ultimately, it boils down to ‘doing good’. UK DC schemes want to employ a company that can invest in a responsible way, as well as practising what they preach internally.
Many industry observers believe that Covid-19 will act as a catalyst for ESG-related issues. The pandemic has demonstrated the potential of low-probability, high-impact events to wreak havoc. Responsible investing is also a tool that is being employed to engage underlying members with their retirement saving.
With the plethora of other external factors at play, the weight schemes place on responsible issues is only set to rise. But it is not just about investment products — schemes expect their providers to adhere to the same high standards in their broader corporate identity too.
Hal La Thangue is a senior consultant in the global insights team at Broadridge Analytics Solutions
