Organizations have an opportunity and responsibility to make a difference around the ESG agenda, and retirement plans are no exception.
Applying ESG principles to retirement benefits
CHRIS MAYO: For companies that want to align their activities with environmental, social, or governance principles, there is a lot to consider when it comes to pensions. Furthermore, the company is not responsible for all of the decisions and, therefore, will have to work with its plan fiduciaries to implement certain changes.
Many of the environmental factors that companies and fiduciaries need to consider are associated with how the pension plan assets are invested. So, for example, addressing transition risk as the world's economy moves to net zero, developing a carbon journey plan, and attempting alignment of a pensions investments with corporate net zero commitments.
One of the most important areas of the social dimension is diversity, equity & inclusion. This requires careful consideration of all aspects of the plan's design and administrative processes to ensure fairness and flexibility for different employee groups and their differing needs. D&I considerations also extend to how the benefits are communicated and ensuring any fiduciary body and the groups responsible for managing the plan's investments are both diverse and representative.
Many companies are familiar with adopting good governance practices in respect of their pension plans. However, one aspect that is often overlooked is good stewardship of the pension funds assets. This requires an active approach towards the role of owner engaging with those assets to protect and enhance their value over time.
With so many aspects to consider, it's not possible for a company to address all of these in one go. Our approach groups the actions into three categories. How the pension plan assets are invested, the pension benefits offered and how they are communicated, and the providers used to support the plan and their ESG credentials.
Organizations have a real opportunity and responsibility to make a difference around the ESG agenda and shouldn't overlook pensions as an area to consider.