The National Employment Savings Trust (NEST) will provide “helpful nudges” to grow the ethical investment market, assistant director of investment Paul Todd has said.
The UK defined contribution (DC) fund offers its members an ethical investment option that mirrors the foundation, growth and consolidation phases of its default target date options, and Todd said it was time to make “a little bit of noise” about its approach.
Although interest in the ethical fund had been “predictably quite low”, with only £218,000 (€263,000) of NEST’s nearly £104m in assets invested in it as of March, Todd said he expected members to increasingly switch out of the default fund as their pot sizes grew and the UK approached the end of the auto-enrolment roll-out.
The fund, which limits exposure to tobacco and gambling to 10% and excludes companies that test cosmetics on animals, seeks to highlight positive themes according to Todd, rather than simply focus on environmental, social and governance (ESG) matters.
“We do try to separate out ethical from ESG, as we think ethical has an extra dimension. It is about values rather than just value.”
He said it would be interesting to see how NEST would differentiate the ethical fund from the default options as ESG themes became more mainstream.
“I think, over time what we want to do is continually go back to our membership and make sure we are pitching this right for the majority of those who want access to an ethical fund. At the moment, we have so few members in the fund, it’s difficult to gauge if we’re getting it right.”
Todd added that increasing awareness of the ethical option, which it was hoping to do with a pamphlet detailing its investment approach, was part of an attempt to apply pressure to the market to adapt and develop new products.
“Our work is always going to be in partnership with the industry, so hopefully we can provide helpful nudges and say ‘there is a demand’.
“There are a lot of people out there who want these products, providing they meet their needs and have the right kind of fee structures.”
According to NEST’s 2013-14 annual report, the ethical option’s growth phase returned 4.34% over the financial year, around 30 basis points below benchmark.
Since inception in August 2011, it saw an annualised performance of nearly 9.5%, nearly four percentage points ahead of the growth phase benchmark.