Putting the spotlight on social factors: PLSA publishes best practice case studies

The PLSA has long had an active interest in social factors and how pension schemes can incorporate them into investment strategies. Over the last 12 months, the association has supported DWP’s Social Factors Taskforce in their endeavours to recommend how the UK pensions sector can better incorporate social factors into investment decisions.

Addressing social issues can be complex, from the lack of clear policies to the challenge of navigating measurement metrics. This is where the PLSA’s best practice case studies come in – offering tangible examples and guidance for our members.

CASE STUDIES

Scottish Widows

Scottish Widows, in 2022, prioritised human rights as their social factor stewardship theme. They focused on engaging companies, conducting portfolio analysis, and utilising third-party data sources to identify 27 high-risk companies with £5.8bn Assets Under Management (AUM). They 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 Investment Managers

AXA's ACT Social Progress strategy, part of AXA IM’s listed equity impact range, aims for long-term financial returns while investing in companies positively impacting society. Focused on four key themes—Inclusion, Healthcare Solutions, Protection, and Technology Enablers—the strategy invests in companies offering innovative solutions to address social needs, contributing to improved living standards worldwide.

Franklin Templeton

Franklin Templeton addressed Europe's social infrastructure underinvestment by launching the Franklin Templeton Social Infrastructure strategy in 2018. With over Euro 812.6m invested in 33 properties across eight countries, the strategy aims for 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.

Legal & General Investment Management - ESG

Legal & General Investment Management (LGIM) entered illiquid investments, including private credit, within Target Date Funds. After a successful start, the plan is to expand the range of private-market assets in 2024 for the Target Date Fund, emphasising growth. With a commitment to long-term responsible investing, 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.

Legal & General Investment Management – Gender and Ethnicity diversity

Legal & General Investment Management (LGIM) advocates for diversity, promoting inclusive boards and leadership teams globally. Their 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. LGIM uses engagement, transparent reporting, and voting sanctions to drive positive change and, through research, addresses ethnic inequality in retirement savings. They also campaign 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.

Railpen

In collaboration with Argon PDS/SRM Capital Ventures, Railpen initiated a project to revamp Monkwearmouth NHS Hospital's mental health facility in Sunderland, responding to local needs. The modern, environmentally friendly 35,000 sq. ft space aligns with BREEAM 'excellent' standards, fostering a stable pension income while providing essential mental health services. Railpen's approach to Sustainable Ownership incorporates social factors, contributing to well-being, climate action, and community support. The project exemplifies their commitment to long-term, sustainable investments with positive societal impacts.

NEST

Nest, since 2013, prioritises social factors in its investment strategy. Focusing on areas like diversity, labour rights, and digital rights, Nest addresses emerging market equities' social risks through a UN Global Compact (UNGC) screen. Nest actively engages with companies to address issues like Uyghur forced labour, adopting targeted stewardship and joining initiatives. They assess companies' ESG performance, prioritise engagement based on ownership, and meet with automotive giants for transparency in supply chains, emphasising the prevention of forced labour. Nest commits to continued engagement and risk mitigation amid regulatory changes.

Tiffany Tsang, Head of DB, LGPS and Investment at the PLSA said; “Many of our members are not only meeting fiduciary duties but also excelling in impactful investing. These 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.

“In an ideal world, 'E,' 'S,' and 'G' factors would be considered holistically. However, recent years have seen most of the focus 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.”

For more information or to access the best practice case studies, please visit the Pensions and Lifetime Savings Association.

Cali Sullivan, PR Manager

020 7601 1761 | [email protected]