As members of the the National Employment Savings Trust (NEST) pension fund save for their future, there is an onus on protecting and growing their money for many years to come.
With that in mind, NEST has developed an investment strategy that is focused on delivering better risk adjusted returns through investing in companies that are likely to create value in the long term.
Applying environmental, social and governance (ESG) criteria to investment decisions, helps deliver sustainable performance.
Because of the scale of the NEST scheme, which is set to become one of the UK’s largest pension funds, there is the opportunity to affect change by engaging with companies so that they are run more sustainably.
As well as improving environmental impacts, active ownership can encourage investee companies to be fair employers and to treat their staff decently – which leads to more sustainable and profitable businesses but it’s also in the best interests of members, who make up a large part of the UK workforce.
An innovative approach
Diandra Soobiah, Head of Responsible Investment at NEST says ESG is an important part of NEST’s investment approach because it can enhance risk-adjusted returns for members in the long term. “It also informs our approach to risk management, and completes the picture of risk across our investments,” she says.
“NEST is a long-term investor and ESG risks tend to play out over longer term time frames, and this sits well with us having a young age profile of members,” she adds.
Soobiah says the move to implement a strong programme in this space was undertaken after gaining a clear understanding of what the NEST membership’s expectations are when it comes to how its money is invested.
“The research that we’ve done recently also backs up the assertion that ESG factors are something that our members would expect us to consider as part of managing money on their behalf,” says Soobiah.
A key aspect of NEST’s approach to ESG is a willingness to take the lead and push boundaries. “NEST always tries to be innovative in the way that we’ve incorporated ESG across our investment approach,” says Soobiah.
She cites the example of the launch of NEST’s climate aware fund. “This fund seeks to manage climate risks and opportunities on behalf of members, within their equity allocation.
“The fund allows us to tilt away from companies that are most at risk from climate change and invest more in those companies that are transitioning to a low carbon economy. We’ve also invested in a new ESG aware commodities fund and ESG forms a really important part of the investment strategy,” she says.
Soobiah says the approach enabled NEST to exclude sectors such as uranium, thermal coal and palm oil from the commodities investment.