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The Actuary The magazine of the Institute & Faculty of Actuaries

Half of pension savers prioritise ESG over returns

Almost half of UK pension savers believe environmental, social and governance (ESG) considerations are more important for their investments than returns, new research has uncovered.

Gap between ESG preferences and reality ©iStock
Gap between ESG preferences and reality ©iStock

The findings from actuarial firm LCP show that 47% of savers would accept slightly lower returns if they are invested in companies that care about employee wellbeing.

Considering the environment was more important than returns for 46%, while 39% said the same about fair trade.

Pension savers also expressed a desire for investment managers to encourage ESG practices, and since most are invested in the default fund, LCP said this should be their focus.

"Understandably, the legal framework doesn’t permit providers to give up returns in the default fund, but they can and should go further in embracing ESG,” said LCP principal Claire Jones.

“There is growing appreciation and acknowledgement that incorporating ESG factors when investing can deliver better financial performance.”

The research involved a survey of 2,162 adults, finding that over two-thirds think it’s important they are invested in firms that care about the environment, fair trade and employee wellbeing.

When asked to imagine investing £1,000 of their own pension, 46%, 41% and 39% said they would consider a company's approach to pay conditions, climate change, and human rights respectively.

Moreover, 81% of respondents said it is important for their pension provider to encourage employee wellbeing, with 77% saying the same for the environment, and 74% for fair trade.

It was also found that 18-24 year-olds appear most willing to accept a slightly lower return if investee companies have strong ESG practices, with 45-54 year-olds least willing.

Jones said that pension providers must do more to tell members how their default fund is invested to address societal trends and savers’ moral priorities.

“Although ESG issues are now firmly on the investment agenda and in public mindsets, significant gaps remain between savers’ preferences and reality," she continued.

"The industry must still do more to close this gap and reassure savers that their funds are invested responsibly.”

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