Philips agreed. On the final point she noticed that one value-play in ESG was to focus on those companies progressing their ESG potential: “the improvers”. Philips said that only backing the recognised ESG champions of today could potentially mean missing out on future financial upside from those companies working to improve their ESG footprint over time. The debate over ethical versus ESG persists, however, because many people instinctively want to use their wealth to benefit other people with great need as well as get a return.
“We always have staff asking about ethical options,” said Garner.
“I would have my own retirement sorted if I had a pound for every time I had to explain the difference between ethical and ESG,” commented Martin Willis, a principal at pension fund consultancy, Barnett Waddingham.
He noted that pension scheme members can put ethics into a collective pension fund but it requires a high quorum of approval (Cancer Research has a tobacco-free default fund).
As ever with DC, communication raises its head as a major feature. Philips noted that Newton has been working with a major public-sector pension scheme in California to communicate how ESG factors are taken into consideration in the scheme’s ESG balanced investment option. The intention is to communicate directly to the scheme’s members using tangible and local language to convey how their investments impact the environment, society and their future retirement income.