Covid-19 impacts pension ESG concerns as disease and pandemic risk become key topics

Published on April 13, 2021 by Blackstone Partners

More consumers want to understand how their pension is invested and to consider ESG (environmental, social, and governance) factors in their investments. So, perhaps unsurprisingly given the last year, disease and pandemics have now become investors’ number one concern.

ESG factors and your pension

Pensions are typically invested to deliver growth during your working life. Given that these investments will influence the retirement lifestyle you can enjoy, it’s not surprising that 71% say they want the highest return possible on their investment, according to a survey from Aviva. However, 63% also believe companies need to be more environmentally transparent about how they invest pension savings.

Despite a growing interest in ESG and more understanding of pension investments, more than half (55%) of pension savers don’t know how their retirement savings are invested.

ESG factors in environmental, social, and governance issues when deciding where to invest your money, including your pension. There are two key reasons this is a good idea:

Your investments can align with your overall values.
You can measure some risks that could affect a company’s operations and profitability.

In most cases, a pension provider will offer several funds for you to invest in. This will usually include an ESG fund, as well as various options for different risk profiles. While people can now often change their fund with just a few clicks online, around 90% of people saving for their retirement are “pension apathetic” – that is, they are investing through the default fund.

If you want to explore ESG investing, it’s worth looking at your pension options and weighing up if switching to an ESG fund is right for you. We’re here to help if you have any questions.

Pandemics now a major concern for pension savers

Covid-19 affected numerous industries around the world, and investors experienced significant volatility in 2020. At points, investment values fell, including pensions. The uncertainty of the last 12 months means more investors than ever are concerned about disease and pandemics.

But how would you weigh up a company’s ESG performance when it comes to pandemics? You could start by researching a company’s operations and the risk management strategies they have in place.

For example, research conducted by S&P Global highlights how some companies overlooked pandemics when analysing risk before the Covid-19 crisis. The airline industry has been one of the hardest hit sectors, but in 2019 just 45% of airline companies reported pandemic risk. Only 5 of the 33 companies assessed mentioned the eventuality of travel restrictions; none envisioned a complete ban on flying.

The paper found there was a lack of preparedness to maintain customer trust, prepare for recovery, and flexibly use resources to adapt to a pandemic crisis. While the Covid-19 pandemic would still have affected airline companies that had prepared, the companies could have lessened the impact and ensured that they were in a stronger position when restrictions lifted.

The airline industry is just one sector affected by Covid-19; many others have had negative experiences too. As Covid-19 continues to impact on the value of pensions, then risk management and planning for future pandemics is set to remain a key ESG topic.

There are different ways to assess ESG criteria, but fund managers may ask some of the following pandemic-related questions:

Did the company install safe-working practices during the pandemic?
Did the company’s Covid-19 response impact customer trust or loyalty?
How were executives remunerated if profits fell?
Would a pandemic cause issues within the firm’s supply chain?
What plan does the company have in place should another pandemic occur?

Research highlights the breadth of concerns

While diseases and pandemics have become a key concern for consumers, the Aviva research demonstrates the wide range of fears they have. The top ten concerns were:

Diseases and pandemics
Climate change
Crime
Poverty and social inequality
Terrorism
Pollution
Decline in social standards
Global financial crisis/market instability
Use of personal data
Identity/cyber fraud/cyberattacks

As ESG investing becomes more mainstream, the way we invest will reflect consumer concerns. Some of the above, such as climate change, already play a core role in ESG decisions for many investors, but others could become just as prominent and central over the coming years.

Incorporating ESG into your investment decisions

Making ESG issues part of your investment decisions can help your investments reflect a wide range of potential risks and concerns. If it’s something you’d like to discuss, please contact our team.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investment (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.