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Can offering ESG investment approaches help drive member engagement?

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This article from Karen Bolan, AHC, looks at the way ESG will impact engagement in investing and saving choices.

There was a time when the only consideration for where we invested our money was the likely financial return we could achieve. But times, it would appear, are changing. We now live in a world where a new conscience is emerging. Whilst we undoubtedly still want to maximise returns, there is now another objective to consider – doing so in a way that also has a positive impact on society and the environment.

An increasing focus is the desire to do good for ourselves, our future and our planet. This will surely push more people towards ESG investment opportunities. And should therefore be considered as a good hook to get people more interested in saving for their future. People engage with things that they are passionate about and a large number of people are becoming increasingly passionate about climate change and the urgent need to protect our planet for the future.

Our first challenge has always been to get people interested. Without interest, we will never achieve engagement.
But what do we mean by an engaged member? For me, it is one who has the right information at the right time, delivered in the right way to enable them to make an informed decision.

ESG is a great opportunity for us to get members engaged and the ones most likely to be leading the charge are millennials. Millennials are very responsive when it comes to ESG investing. They want to contribute to the future that they want for themselves. It may be true that traditional media and even social media are now providing a helping hand in influencing members for us.

I recently spoke to a millennial colleague about whether he was influenced by ESG considerations when deciding where to invest. He told me, “If I was comparing 2 funds and the one had a greater emphasis on ESG, I would choose that fund.
Climate change is unlikely to affect my future, but it will probably impact my son’s future and most certainly it will impact his children’s futures. These factors are now playing a part in how we live our lives and what investments we choose. My wife is probably even more influenced by this than me.”.

Making investment decisions is still too big a responsibility for a lot of members, with the vast majority still opting for the default believing this to have been selected by people better qualified than them to know what the right thing is.
With the rise in social conscience and greater availability of ESG options, are we about to see a change, with members more inclined to positively select investments for their ethical credentials? And perhaps more importantly, if millennials are open to being more engaged, how do we achieve this. Millennials are feeling financially empowered and they want genuine future-oriented investments, not just an ESG label.

Millennials are among the most attracted to products and services that are considered sustainable. In 2017, a survey conducted by Morgan Stanley revealed that 86% of millennials who responded said that they were interested in sustainable investing.
Trust has a big part to play though and remains one of the major barriers to engagement. Distrust of financial services is high, particularly amongst millennials who lived through the financial crisis. Thinking creatively about communication and providing engaging tools that are simple to use and take action are the only ways to overcome the barriers to engagement. A clever piece of tailored communication can really resonate with employees and get them to sit up and listen. This has clear benefits for employers, as someone who understands and appreciates their pension will generally have higher levels of loyalty but, more importantly, engaged employees are more likely to take steps that will help them on their way to a more prosperous retirement.
To build trust, any communication around responsible investing has to be delivered with honesty at its core. Younger investors are increasingly monitoring ESG performance and even the most well-intended action can lose credibility if people suspect ulterior motives.

Clearly not completely consumed by the Brexit debate, a report today confirms that a total of 330 current and former MPs have signed a petition calling on the trustees of the Parliamentary Pension Fund to end its investments in fossil fuel companies. The pledge states that MPs have a “responsibility to act on climate change” and “a unique opportunity” to show leadership on responsible investment.
A regular discussion within the industry is one that asks, “Do we really want members to be engaged?”. I would argue that we do and, if driving an ESG agenda can help us achieve that, then don’t we owe it to ourselves and future generations to grasp the opportunity.