Health and WellbeingRewards & BenefitsWhy doing good today can build a better future for your employees

Why doing good today can build a better future for your employees

How can HR leaders help their employees to take care of their future? Chris Inman, Head of DC Investment Advisory, Aon, investigates why doing good for society can make all the difference.

One of the biggest challenges in workplace pensions is encouraging employees, many of whom will be struggling with day-to-day financial worries, to put money aside for their ‘future self’ in retirement.

Saving for another version of yourself can seem almost like saving for a stranger, especially when employees might not be able to access the money they save today for another 30-plus years.

There are many ways to help bridge this divide. One powerful way to make pension saving feel more real is to show employees how their contributions are making a tangible difference to the world around them every day.

As well as making a link between corporate behaviour and climate change, employees are increasingly choosing to interact with businesses that contribute positively to the communities in which they are based. According to Deloitte’s Global Millennial Survey 2019, 42% said that they had started or deepened a business relationship because a company or its products or services have a positive impact on society and/or the environment. They are also option to leave employers with unfair or opaque pay policies – the same survey showed that 43% of millennials and 34% of Generation Z employees intend to leave their job in the next two years because they are dissatisified with their financial rewards.

Businesses have responded to this by publicly promoting their corporate social responsibility (CSR) statements online and embracing environmentally-aware policies – such as recycling – in the workplace.  Some have also adopted ‘responsible reward’ strategies, which might include making sure that their staff’s mental health is well supported and that their employee benefits policies are truly inclusive.

But how many companies’ pension scheme investments are aligned with those wider corporate values? If climate change is being taken seriously by the business as a part of its everyday operations, is that reflected in the way that its pension scheme invests?  If a business commits to looking after the wellbeing of its own staff, is that also the case for the companies in which the pension scheme invests?

Employees may well expect their pension savings to be invested using the same set of values as their employer’s CSR policies.  As pensions auto-enrolment becomes part of business-as-usual and employees’ retirement savings grow, they will want to know more about how closely their investments match their personal values and those of the business that they work for.

There is clear evidence that employees already feel strongly about the way in which their pension scheme invests. A recent study carried out by the University of Cambridge Institute for Sustainability Leadership’s Investment Leaders Group, found that given the right information people would choose to avoid investments which harm the environment or others. In a ’virtual investment’ experiment designed to test what people would actually do rather than what they said they would do, three-quarters of participants would select a more sustainable fund on a like for like basis.

Additional research from the Defined Contribution Investment Forum found that 63% of DC pension savers said they would feel more positive about their pension if they knew it was invested responsibly, and 40% said that they would pay in more if that was the case.

The influence that pension scheme investment can wield on society and the environment is being recognised in other quarters as well. The Pensions Regulator now requires defined contribution (DC) scheme trustees to report annually on how they address environmental, social and governance (ESG) issues in their investment strategies. From the Regulator’s perspective, this is about ensuring that pension schemes invest in businesses that are capable of sustainable growth over the long term, as well as making sure they are playing their part in factors such as managing climate change.

From an individual saver’s perspective, ‘investing responsibly’ might mean many different things, depending on their personal values. But there are some underlying constants of ‘good business practice’ – such as being environmentally responsible, treating staff fairly and running a company well – which will be universally well-received by employees.

Giving examples of how their pension investments are helping to achieve this can help to bring retirement savings to life on a day-to-day basis and opens up some great communications opportunities. Imagine being able to quantify for employees as a part of their benefits statements how every pound of their pension savings is being used to reduce carbon dioxide emissions, generate renewable energy or support better healthcare. Or, being able to pinpoint on a map exactly where their money is being invested in projects that are having a direct influence on people’s lives.

Using ‘good news’ investment stories as a way of engaging employees is already happening in other pensions markets around the world. For example, the Australian superfund (similar to a UK master trust) Future Super runs a solar energy farm as a source of income, which was built with members’ pension contributions. This is promoted in the fund’s communications, including reports on the energy generated by the farm, and a video that tells the story of ‘the farm my Super built’.

The majority of employees do not choose where their pension savings are invested, so responsible investment needs to be at the heart of any default investment strategy in order to have this type of impact. Simply adding an ESG or responsible investment option as an individual fund choice will not benefit to the same extent.

However, building and reporting on a responsible investment strategy cannot happen overnight. It can take time to transition the default arrangement into suitable funds and to build the reporting mechanisms needed to create good news stories. But every employer, working in conjunction with their pension scheme and consultants can start to take the first steps today:

  • Work with the pension scheme to understand whether its existing default investments mirror the company’s wider corporate social responsibility policies, workplace practices and responsible reward principles. If there are clear differences in approach, discuss how these could be resolved over time through changes to the investment strategy or provider.
  • Identify existing good news stories about how the pension fund’s investments are benefitting companies in the local area or having a direct impact in relation to climate change. Or, there might be a story around how the fund manager has influenced the governance of a company by voting against inappropriate executive high pay, for example.
  • Explore ways that those good news messages can be communicated to employees – for example, in video interviews or as short stories in a pensions bulletin or statement. Use this to build a communication strategy that can help to drive employee engagement over time.

Harnessing employees’ interest in how their pension savings are invested – and the positive, tangible benefits from that – could begin to crack the conundrum of how to engage employees in their long-term savings. It can help employees understand what their pension scheme can achieve for the world today -and by doing so encourage them to build a better retirement for themselves in the future.

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