Smart Pension has published one of the UK’s first comprehensive human capital assessments of a pension fund equity portfolio, in a move that could underpin an industry-wide benchmark and bring social factors closer in line with climate risk in investment analysis.
The workplace pension provider, which manages more than £9.5bn (€11bn) in assets, partnered with Denominator to analyse leadership diversity, workforce practices, employee turnover, and pay gaps across 1,751 holdings in its £4.4bn Smart Sustainable Growth Fund.
Speaking to IPE, Fiona Smith, head of responsible investment at Smart Pension, said the initiative aims to strengthen the fund’s stewardship programme with data it previously lacked.
“It’s new data that we haven’t seen before. There may be things that we can use, and we’ve already started to see that there are things we can use to try and improve our policies and engagements, which ultimately will benefit our members,” said Smith.
The findings are presented in two reports: one from an asset owner perspective, focusing on how human capital data can support decision-making and active ownership; and another from a data provider perspective, outlining the underlying risk and opportunity set.
The analysis, backed by Pensions for Purpose, builds on similar research conducted by Denominator with Nordic pension funds. This covers around $3trn (€2.6trn) in assets across 25 asset owners, including Danica, AkademikerPension, PFA, Ilmarinen, AP2 and Norway’s Government Pension Fund Global.
The UK study is intended as a starting point for a shared baseline, with other pension funds invited to participate on an anonymised basis.
“Everyone agrees ESG is financially material, and the S [social] is in ESG, that has long been a given for fiduciary trustees. This is a starting point for us,” Smith added.
The publication comes amid heightened scrutiny of ESG and diversity, equity and inclusion (DEI). Smith said the objective is to develop a practical stewardship tool rather than engage in terminology debates.
“Investing responsibly is just investing,” she told IPE. “You can change the words on anything and people will still care about it.”
With support from Pensions for Purpose, Denominator is now inviting UK pension funds to contribute data from their equity portfolios to help build a broader benchmark.
Karen Shackleton, director and chair of the board at Pensions for Purpose, said: “Evaluating the human capital value in underlying investments can be a challenge for UK pension funds. Therefore, the starting point needs to include a baseline assessment so that any improvements from strategy changes can be benchmarked.”
