The Silver Linings elderly care competition: addressing a key part of the "S" missing from pension trustees' ESG agendas.
Deploying pension scheme capital to fund sustainable, creative and investable social care innovations for older people may be part of the solution.
The deadline for entering a 3000 word Business Plan to the Silver Linings Competition for care solutions for older generations is January 1, 2022.
Win 1x £10k winners prize and 2x £5k runner-up prizes.
Step back in time just a few years and you would be hard pressed to find many pension scheme trustees devoting significant time to environmental, social and governance (ESG) issues. However, things have changed. Since October 2019, pension scheme trustees have been required by law to have a policy setting out their approach in relation to financially material ESG considerations relevant to their investments, and our prediction is that the regulatory and policy expectations on trustees in this area will grow even further in the coming years. The result is that ESG issues are now front and centre of many trustees' agendas.
What about social factors?
So far, much attention has (perhaps understandably) been focussed on environmental factors and climate change. But environmental considerations are just one part of the equation for pension scheme trustees and attention is increasingly turning to the "S" in ESG. The "S" means social factors – broadly, the social and societal impacts of investments. This can include topics such as a company's performance on human rights, working conditions and corporate social responsibility, but there are many other potential aspects. It is sometimes suggested that social factors are less well understood, and harder to quantify and measure, meaning they may not be getting the attention they deserve on the investment agenda. However, this looks set to change.
As lawyers, we would suggest that where trustees identify social factors that are financially material to the risks and opportunities of an investment, the law already supports those financially material social factors being taken into account and captured in a policy in the statement of investment principles. Added to this, a March 2021 call for evidence by the Department for Work & Pensions (DWP) sought views on trustees' approaches to social factors, and the clear direction of travel seems to be that future policy changes are in the offing that will require pension scheme trustees to consider social factors more closely.
We are also noticing a number of commentators, activists and socially engaged pension funds starting to talk about the concept of achieving 'a world worth retiring into' in a broader sense, including quality of later life.
The evolution of pensions industry thinking on social factors is something that the creators of the ideas for elderly care competition: Silver Linings: Because our pension beneficiaries really do matter - Hugh Wheelan (Co-founder and Joint Managing Director, Responsible Investor), Dr Rachel Melsom (Founder Director, Medical Matrix Consulting Ltd and Practising Doctor, NHS) and Sally Bridgeland (FIA, trustee, non-executive director and adviser) - are seeking to tackle head-on, and others are watching with interest.
Travers Smith is supporting the competition, and will be hosting the awards ceremony in February 2022.
The Silver Linings team believe one key answer may be close to home.
Put simply, the current system is not working. An ageing population and long-term underfunding (spending on social care is 3% lower now than it was a decade ago), compounded by the coronavirus pandemic, have laid bare failings in social care provision for the elderly and have highlighted what the Silver Linings team believe is an urgent need for reform. Innovation and investment are desperately needed. Deploying pension scheme capital to fund sustainable, creative and investable social care solutions for older people may be part of the solution. Could this be an opportunity to fill the "S" gap in trustees' ESG agendas? Maybe, but there is work to be done first. This is because opportunities for sustainable and positive investment in social care solutions for older people, which align well with trustees' investment duties and priorities, are currently limited.
Social care for the elderly – the obvious "S"?
The aim of the Silver Linings competition is to invite submissions from individuals and organisations for sustainable and investable solutions to re-think how care for older people is provided - and funded - in the UK. The aim of the competition is to draw on diverse ideas from across disciplines in technology, architecture, finance, health and care provision to come up with ideas that could not only make social care sustainable, but also improve longevity and quality of life.
However, even if investable solutions do materialise, will they necessarily be the right investment for pension scheme trustees? The answer will depend on the individual scheme and on the nature of the solution, but, on paper, there is no legal impediment if the right opportunity materialises.
What’s in it for trustees?
The potential social benefits of large-scale investment in social care solutions for older people, whether from pension scheme trustees or other investors are evident; improving provision would lead to a corresponding improvement in quality of life for older people, and it is difficult to imagine a social factor that is a more natural fit for pension scheme trustees, whose job it is to ensure that their members have an income in retirement to fund an appropriate standard of living.
However, ticking the "social factors" box is not enough on its own, and trustees have a duty to invest scheme assets in a way that will deliver long-term value for their members. That is where the challenge lies at the moment, and this is one of the gaps that the Silver Linings competition is trying to fill.
There is undoubtedly work still to be done. But there are also opportunities for trustees who are willing to consider investing in new asset classes if and when opportunities do arise, with the potential to generate tangible social benefit at the same time as achieving their objectives around investment risk and reward. Watch this space.
For more details of the Silver Linings competition including details of how to enter, please visit: www.silverliningscompetition.com. Entries close on January 9, 2022 and winners will be announced in February 2022.
Andy Lewis is a Partner and Niamh Hamlyn is a Senior Associate in the Pensions team at Travers Smith.