Two thirds of UK’s largest AE providers do not exclude ‘controversial weapons’ investments

Two thirds of the UK’s largest auto-enrolment pension providers do not have policies in place to prevent investments in companies that profit from chemical and biological weapons.

According to a new report by Share Action titled The Engagement Deficit, Aviva, The People’s Pension, Royal London, Scottish Widows, Aegon and Standard Life do not screen out firms that produce toxic components of harmful weapons in their default fund investments. Additionally, Aegon does not have an exclusion policy for any controversial weapons from any of its funds.

The report, which ranked 10 UK auto-enrolment providers, considering their approaches to responsible investment and on how they engage with members, ranked Nest as the top performing provider with 260 out of a possible 352. The People’s Pension followed as second highest with 204, Legal & General’s contract based funds and master trusts scored 200 and 195, respectively. Aviva scored 193 and Standard Life’s contract based and master trust scored 193 and 192. The bottom five performers were: Scottish Widows (187), Royal London (166), NOW: Pensions (139), Aegon (90), and Smart Pension, who withdrew from the survey.

Share Action also identified that overall auto-enrolment providers are ‘lax on tax’. Only Nest and Royal London have specific policies in place on how they are actively encouraging responsible tax conduct by investee companies.

Nest excelled ahead of its peers, scoring 86 per cent in the climate change category and its approach to climate-related financial risks and was the only provider to have a measurable target to reduce the portfolio’s exposure to climate risks. The rest of the providers surveyed failed to score above 32 per cent in this area.

As a result of its findings, Share Action has called for providers to be required to produce a statement of responsible investment principles with a commitment to engage with underlining investments to promote better practice.

The watchdog added that the Department for Work and Pensions, the FCA and The Pensions Regulator should also encourage climate risk assessments in default funds, gender diversity targets and member engagement.

Work and Pensions Committee chair Frank Field commented that against the backdrop of auto-enrolment, this research is forward-looking at responsible investments that took a back-seat during the first stage of the policy. “This is also an important opportunity to focus on the incorporation of responsible investment – especially in the default fund where the vast majority of these new savers are – ensuring that even the most disengaged savers still benefit from the proper consideration of environmental, social and governance risk,” Field said.

Nest head of responsible investment Diandra Soobiah added: “Giving members more insight into where their money goes and the impact it can have is engaging, helps bolster trust and confidence in pension savings and creates a sense of ownership over their money. After all, responsibly managed pensions not only improves financial outcomes for members but can help improve the society and environment we all live and retire in. It’s a great story that we are working hard towards sharing with our six million members.”

“The strong incorporation of responsible investment principles is good for our savings and good for society,” Share Action research officer and report author Paul Britton concluded.

Commenting on the findings a Royal London spokesperson said: “Royal London Group has a policy to exclude controversial weapons from our active funds managed by RLAM, however we do have a very small exposure via our passives which track the benchmark and cannot at the moment exclude these companies.”

An Aegon spokesperson also told Pensions Age, “In our response to the Share Action survey, Aegon focussed on workplace default funds. As we explained, these are passive funds which means they track the make-up of various stock indices.

“Two ESG considerations should be emphasised in respect of passive funds’ increasing alignment with ESG objectives: The make-up of such indices, e.g. S&P-500, is changing over time as climate focused stocks gain in market value. Therefore Aegon’s default fund is becoming increasingly ESG aligned. By example, the Aegon default fund’s North American investments already have significant exposure to Tesla and Google, both ESG aligned securities.

“Furthermore individual companies in various indices are adjusting their business models to reflect climate change, e.g. SSE Energy investing in wind farms, Shell investing in electric car charging networks. Index investing is a method, by default, of gaining increasing ESG exposure.”

A spokesperson for The People’s Pension added: "We have a very small exposure to companies who are involved in the production of controversial weapons. Over the past six months we’ve been working to introduce screens to reduce this exposure further.

"The overall results of Share Action’s survey show that we’re moving in the right direction on responsible investment, and we’ll continue to work to make improvements in the best interest of our members."

Aviva, Standard Life and Scottish Widows are yet to respond requests for comment.

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