UK looks at getting pension funds to target explicit social or environmental investments

Response to report from group led by Allianz’s Corley

The UK government has said it has aspirations for pension schemes to target a minimum percentage allocation towards investments that have an explicit social or environmental purpose, and report on this.

It has said it will work with industry and regulators to explore this idea, along with UK pension schemes considering member views much more seriously in pension investment decisions.

These government goals form part of a response to an Advisory Group on Social Impact Investing that released a report last year entitled ‘Growing a Culture of Social Impact Investing in the UK’.

The Advisory Group, chaired by Vice-Chair at Allianz Global Investors Elizabeth Corley, made a number of recommendations across regulation, government and business. Some of its recommendations to government included supporting co-investment, looking at tax incentives and the development of social impact bonds.

Today, the government has issued a formal response with a number of commitments it will undertake to boost social impact investing in the UK.

It has said it will look at the further development of social impact bonds and work with regulators and statutory bodies to make sure social impact is considered in their frameworks and understanding.

Also, the Department for Business, Energy and Industrial Strategy will lead an evaluation of company reporting on social and environmental issues and changes will be made to the Companies Act to improve businesses’ reporting on their impact on employees and other key stakeholders.

The government has also committed to explore how businesses are using the Sustainable Development Goals (SDGs) to frame their social and environmental responsibility and the Department for International Development will support the World Benchmarking Alliance to publish league tables ranking company performance against the SDGs.It will consult on changes to fiduciary duty to allow for consideration of broader financial risks and opportunities, including ESG issues. Also, it will consult on changes to regulation to strengthen pensions schemes ability to consider member concerns about their investments and clarify the ways pension schemes should engage with the firms they invest in, alongside voting.

“Investing can and should be a force for good”

The government has also committed to cross-departmental work on how pension investments can consider environmental and social impact more. This includes, removing long-term behaviour and legislative barriers.

Also, the government has an aspiration for pension schemes to allocate a minimum percentage to social impact investment and consider member views in investment decisions.

John Glen, who has government responsibility for asset management as Economic Secretary to the Treasury, said: “Investing can and should be a force for good, and it’s vital that industry and government work together to make it easy for people to invest in the causes they care about.

“Social impact investing is brimming with potential and we are encouraging firms to develop products to meet the rising demand, while championing the industry’s potential to make a real difference to people’s lives.”

The government will continue to work alongside the financial services industry and regulators and will provide a progress update in winter 2018.