The number of savers enrolled in DC workplace schemes in the UK is expected to rise to 17 million (up from 11 million today) while the aggregate pension pot value is forecasted to reach £554 billion by 2030, and could potentially be as high as £914 billion - and 90 per cent of current DC savers are in their scheme’s default fund.

As research continues to show the materiality of environmental, social and corporate governance (ESG), it is therefore increasingly crucial for the financial security of UK workers to understand the ESG risks facing default funds.

The PLSA has published a new discussion paper on this subject authored by Sustainalytics. The new research identifies ‘human capital’ – the composition, stability, capabilities and engagement levels of a company’s workforce - as the single biggest source of ESG risk facing the companies in which default funds invest. Risks deriving from energy use and greenhouse gas emissions affect the most industries in the typical DC default fund portfolio.

The paper identifies passive investment strategies incorporating ESG and more active stewardship of investee companies as potential ways of mitigating this risk.

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