In the United Kingdom, the National Employment Savings Trust, known as Nest, is the country’s leading defined contribution workplace pension scheme. It was set up to facilitate automatic enrolment as part of the government’s workplace pension reforms under the Pensions Act 2008. It has 11 million members with 24 billion pounds in assets under management.
“We are really strong advocates of stewardship,” said Nest CEO Helen Dean (pictured), speaking at a recent World Pensions Council conference in Paris.
“It is one of the most important tools that an investor can use to influence the companies they invest in. We take a very holistic approach to it. So we’re looking at voting and our members› long term interest. And we’re looking at having a direct and indirect dialogue with companies we invest in, and we’re contributing to public policy, you know, as that develops, across a range of ESG issues.”
Nest has four responsible investment objectives: to achieve better risk adjusted returns, to enable long term wealth creation, to manage our reputational risks and to help create a better functioning market. “That’s our place to start, we always go back to them,” she said.
Prioritisation framework
Choosing investments at Nests begins with research, also with third parties, discussions with fund managers, scanning the environment and feedback from investor groups, standards bodies and NGOs, and member surveys. From there, “a prioritisation framework” is used to narrow down choices.
The framework “helps us focus on the most financially material or the most systemic risk, or the most material opportunities,” Dean said. “And that’s looking at things like what’s the financial impact of that ESG factor in our portfolio? What are our members concerned about? What are the relevant codes of initiatives and things we know about what’s happening in the world? And what governments feel about things? What is that telling us about risk? And what is the actual real world impact of that issue?”
Dean, in a video interview at the conference, said Nest is keen to “promote and facilitate high standards of stewardship across the UK pension fund industry as a whole” through active ownership and proxy voting, not only in its engagement with listed companies but also through a tailored strategy towards other types of assets.
Exclusion as last resort
Nest’s engagement with UK grocery chain Sainsbury’s was a successful example, she said, as it pressed the company into becoming a “living wage employer”.
Another example is Nest’s engagement, together with investment bank UBS, towards oil and gas companies. “So we engaged with 49 of them very actively. They each had their own specific measures that we wanted them to address over a three year period. Most of them really responded well and made good progress. Five of them didn’t, and we have finally decided with UBS to remove them from our portfolio. So our last resort is to exclude, but that is very much the last resort.”
Helen Dean’s intervention at the World Pensions Forum, July 2022: