Ministers have today launched a new taskforce to scrutinise environmental, social and governance (ESG) investing by pension schemes amid concerns that the ‘social’ factor of investment has been neglected by fund managers in recent years.
The new group, headed up by pensions minister Guy Opperman, will hone in on the ‘social’ aspect of ESG and look to gauge the impact of pension cash on issues like community engagement, consumer protection and modern slavery.
Speaking with City A.M., Opperman said that while environmental and governance aspects of ESG had seen strong take up by pension funds, social factors still lacked enough standardisation and clarity to be practical for investors.
“No one has been able to define and then apply the social element of ESG to their investment practices with real certainty, but there are easy examples which most people would agree on – supply chains, the avoidance of modern day slavery and genuinely understanding the wider impact of your investment practices, for example,” he said.
“The UK pension sector is worth over £2tn pounds. How that is invested has a massive impact on the UK and the wider world and UK.”
In a call for evidence from the industry, Opperman said that social risks in investment had also been heightened by “global events” in recent months, with the war in Ukraine increasing the risk of modern slavery risks across supply chains.
The new taskforce will span both public and private sectors and set out metrics by which fund managers can be held to account on the social impact of their investments.
It comes as ministers ramp up pressure on pension funds for transparency amid a crackdown on unethical investment with the nation’s retirement cash.
Opperman told the industry this week that new climate reporting measures for pension funds introduced last year were a “challenge” and “burden” for fund managers but it was clear it was now the only way to clean up investment.
Pensions funds have also faced heightened pressure from campaigners who claim the industry has not gone far enough to stamp out investment into high-polluting and damaging industries. Campaign group Make My Money Matter, headed up by Love Actually director Richard Curtis, claims that £2 of every £10 invested in pensions is still linked to deforestation.
Claims of greenwashing through the wider ESG industry, which swelled to manage $4tn in assets globally last year, have sparked a reckoning in recent months as investors struggle to standardise and define metrics.
Big four firm EY’s sustainability chief said ESG had been “hijacked” by marketeers as the firm called for greater scrutiny and regulation of the space to prevent it falling into “disrepute”.