Picking the right shares or funds for pension investing is about more than growing wealth.
Political and economic issues can impact fund growth.
That’s why environment, social and governance (ESG) plays an important part of investing for millions.
Although many investors may not be aware of ESG, fund managers certainly are.
The issues are hot topics that grab the headlines almost every day – climate change, pollution, how companies interact with staff and customers, promoting women and minority executives to boards and how much bosses are paid all come under ESG scrutiny.
These factors can impact on investment returns.
As pensions look decades into the future, companies that fail the ESG test are less likely to provide the growth investors need to meet their retirement targets.
Decisions behind closed doors
Finding the right information and asking detailed questions before staking hard-earned cash in a company can be challenging.
One organisation helping out is ShareAction.
The group is against executives making decisions behind closed doors.
One of the latest campaigns looks at executive pay.
“BP CEO Bob Dudley took home $11.6 million with him this year. Yes – it is slightly less than his 2016 salary of $19.3 million. But how can $11.6 million possibly justify the running of an oil company in a way that ignores climate risk and the need to transition to a two degree world? How can shareholders have let this happen?” Says ShareAction.
Executive pay disconnect
“Executive pay becomes problematic when there is a disconnect between profits and pay, which does not reward the right type of long-term behaviour.
“We can no longer bank on business as usual – and therefore shouldn’t reward executives for doing so. Remuneration policies that fail to capture these changing dynamics could pitch the interests of executives against those of long-term shareholders.”
To tackle the issue, ShareAction urges shareholders and savers to lobby their pension funds and to attend company annual general meetings to make their feelings known.
Other groups run similar ESG campaigns, such as PRI (Principles of Responsible Investing) and the US based Forum for Sustainable and Responsible Investing.
The Co-Op Bank has long promoted ethical investing in the UK, and has been joined by many pension funds, notably Standard Life.