The number of FTSE 350 defined contribution (DC) schemes that have incorporated environmental, social and governance (ESG) factors into their default investment funds has increased by almost half since last year.
That is according to research by Willis Towers Watson (WTW), which found that 43% of schemes have now adopted ESG investing factors into their defaults, up from 30% last year, and 17% in 2020. This is expected to increase to 56% within the next two years.
Master trusts are leading the way, with 66% having already incorporated ESG factors into their default funds, which is set to rise to 80% within two years.
Gemma Burrows, director in WTW’s retirement business, said: “ESG continues to gain significant focus across all DC scheme types and within two years it is expected that more than half of schemes will have taken the step of integrating ESG into the default strategy.
“As well as aligning with corporate beliefs for many companies, ESG is also being seen as an important factor in engaging members in their retirement savings.”
The research included a survey of 233 eligible companies in the FTSE 100 and 250 indices, and 86 non-FTSE listed companies.
It found that improving employee financial well-being support over the next two years, through enhanced communication, education and decision-making support, has become a major focus for 83% of employers.
As part of this shift, the number of organisations with a formal financial well-being strategy, connected programmes, a consistent brand and an effective communication strategy, is expected to rise dramatically: from 17% today to 94% within the next two years.
Saving for retirement is the main priority for most strategies (82%), but many are also looking to address other areas, including budgeting, spending and debt (48%), short-term emergency savings (29%) and saving for house purchase deposits (23%).
The findings also show that 11% of employers are even allowing employees to use their employer pension contributions for other financial priorities, with a further 22% planning to introduce this flexibility in the next two years.
Burrows commented: “In recent years we have seen employers take a much broader view of their employee experience and financial well-being strategy.
“Employers are acutely aware of the current cost-of-living crisis facing employees and many are adapting the way in which they offer benefits to introduce new flexibilities in order to address this.
“Contribution flexibility was once viewed solely as a mechanism to mitigate the impact of the annual allowance for higher earners, but increasingly, employers are looking at providing flexibility to employees and offering saving options, such as ISAs, that may be more relevant to individuals in the short and medium term.”
Image credit: iStock
Author: Chris Seekings
