The Pensions and Lifetime Savings Association (PLSA) has published a number of case studies highlighting “exemplary” investment approaches to serve as a guide for its members.
The association said that it has “long had an active interest in social factors and how pension schemes can incorporate them into investment strategies”.
Over the past 12 months, the association has supported the Department for Work and Pensions (DWP) social factors taskforce in its endeavours to recommend how the UK pensions sector can better incorporate social factors into investment decisions.
It acknowledged that addressing social issues can be “complex”, from the “lack of clear policies to the challenge of navigating measurement metrics”.
For this reason, the PLSA compiled several case studies highlighting “exemplary investment approaches that not only maximise returns but also make a positive impact on social factors”.
Among those highlighted were NEST, Railpen, Franklin Templeton, AXA Investment Managers, Scottish Widows, and Legal and General Invesment Management (LGIM).
NEST
NEST, the UK workplace pension scheme, has prioritised social factors in its investment strategy since 2013, focusing on areas such as diversity, labour rights, and digital rights, PLSA noted. The fund addresses emerging market equities’ social risks through the UN Global Compact (UNGC) screen, it added.
In addition, NEST actively engages with companies to address issues such as Uyghur forced labour, adopting targeted stewardship and joining initiatives. The fund assesses companies’ ESG performance, prioritises engagement based on ownership, and meets with automotive giants for transparency in supply chains, emphasising the prevention of forced labour.
NEST also commits to continued engagement and risk mitigation amid regulatory changes.
Railpen
Railpen’s case study highlights its collaboration with Argon PDS/SRM Capital Ventures through which the UK railways scheme initiated a project to revamp Monkwearmouth NHS Hospital’s mental health facility in Sunderland, responding to local needs.
The PLSA said the modern, environmentally friendly 35,000sqft space aligns with BREEAM standards, fostering a stable pension income while providing essential mental health services.
It also added that Railpen’s approach to sustainable ownership incorporates social factors, contributing to wellbeing, climate action and community support. It said that the project exemplifies the fund’s commitment to long-term, sustainable investments with positive societal impacts.
Scottish Widows
Scottish Widows’ case study highlighted its move in 2022 to prioritise human rights as its social factor stewardship theme.
The firm focused on engaging companies, conducting portfolio analysis, and utilising third-party data sources to identify 27 high-risk companies with £5.8bn in assets under management.
The PLSA also pointed out that Scottish Widows actively conducted research, engaged with companies, and planned ongoing monitoring, engagement, and escalation through voting to address human rights issues.
As well as forming part of Scottish Widows’ net-zero commitments, the organisation’s Loan Investments & Shareholder Assets team work to invest the Scottish Widows’ annuity fund to help deliver positive, real-world change.
AXA IM
AXA IM’s case study focused on the manager’s ACT social progress strategy which aims for long-term financial returns while investing in companies positively impacting society.
The strategy is focused on four key themes – inclusion, healthcare solutions, protection, and technology enablers – and invests in companies offering innovative solutions to address social needs, contributing to improved living standards worldwide.
Franklin Templeton
In Franklin Templeton’s case study, the association highlighted its work in addressing Europe’s social infrastructure underinvestment by launching the Franklin Templeton Social Infrastructure strategy in 2018.
With over €812.6m invested in 33 properties across eight countries, the strategy targets a 5% financial return above EU Core Inflation and supports eight UN Sustainable Development Goals through a proprietary impact measurement framework, verified by third-party auditor BlueMark.
LGIM
For LGIM, the PLSA highlighted its involvement in illiquid investments, including private credit, within target date funds. It said that after a successful start, the plan is to expand the range of private market assets in 2024 for the target date fund, emphasising growth.
The association added that LGIM focuses on ESG-related initiatives, including social impact, circular economy, and health and wellbeing, aiming to drive positive change and manage climate-related risks.
It also noted LGIM’s work around advocating for diversity, promoting inclusive boards and leadership teams globally. It said that LGIM’s diversity policy sets expectations for companies to ensure a minimum of one-third representation of underrepresented genders and ethnic diversity on boards and executive teams.
The case study highlights that LGIM uses engagement, transparent reporting, and voting sanctions to drive positive change and, through research, addresses ethnic inequality in retirement savings.
It also campaigns for improved transparency and disclosure on ethnic diversity in companies, contributing to reliable data and pushing for diversity in smaller companies by the end of 2024.
Tiffany Tsang, head of DB, LGPS and investment at the PLSA, said that many of the association’s members are not only meeting fiduciary duties but also excelling in impactful investing and the case studies serve as a guide “empowering our members to navigate the challenges and opportunities presented by social factors – keeping these issues at the forefront of pension schemes’ priorities”.
She said: “In an ideal world, ‘E,’ ‘S,’ and ‘G’ factors would be considered holistically. However, in recent years most of the focus has been on environmental issues. The public’s growing interest in diversity, inclusion, modern slavery, and human rights has continued to heighten scrutiny on pension schemes’ investment practices.”
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