Understanding provider philosophy
Maria Nazarova-Doyle, head of pension investments and responsible investments at Scottish Widows, says understanding the philosophy and investing approach of any potential provider is a key part of the selection process in the context of making recommendations to employers.
She says: “Part of this assessment of a pension provider is whether their approach should lead to good outcomes for customers. Investment philosophy, strategy and proposition should all be in alignment to have the greatest likelihood of delivering good customer outcomes.”
A fundamental tenet of this approach is for investment managers to take all variables into account, Nazarova-Doyle believes.
“By investing responsibly, all material factors are taken into account in the long-term analysis of investments by managers, and into the development of the customer investment proposition by the pension provider,” she says.
Nazarova-Doyle explains that responsible investing incorporates “a more complete set, and thus holistic view, of relevant risks and opportunities into the assessment of investments and product propositions. Pension schemes are long-term vehicles, so selecting a provider with a long-term investment outlook is key to ensuring good customer outcomes”.
Medlock of Royal London says most providers will have a similar strategy when it comes to engagement, explaining that “what is important is their effectiveness at driving change”.
He says: “This can be done directly, or in conjunction with industry bodies. However, no provider will have the capacity to engage with every company they invest in on every issue.”
He still believes it is important to understand a provider’s responsible investing strategy though.
“Providers will often select themes that are important to them and their customers and focus their engagement efforts around these themes. Employers should want to know that the issues their provider is championing are aligned to those of their employees.”
Responding to the question of why understanding a provider’s responsible investing strategy is key for making recommendations to employers, Henderson says: “This is difficult to answer properly.”
“We fully understand the construction of individual funds and their associated strategies from an ESG perspective; we also have some insight on the people that manage the money.
“However, a separate question is, does the provider as an organisation or company have ESG and/or climate policies in place? Do these lead to clear processes that staff follow? Can they provide evidence it is actually happening?”
He also raised the point of whether their board is representative of their workforce and what the gender pay gap is at these providers, suggesting the actual reality of what is happening in an organisation can differ from what appears on paper and in meetings.
