Talking head: Paul Todd, assistant director of investment at the UK's state-sponsored pension scheme, explains how its ethical fund is constructed to deliver an appropriate strategy for its members.
While this trend may not have transpired in pension fund selection yet, we believe we are going to start seeing more of this in future.
Over time we plan to frequently go back to our membership to make sure we are getting things right
Nest is committed to providing its members with an ethical choice that does not force them to choose between their moral values and financial outcome in retirement.
Our ethical fund takes account of members’ concerns, as well as their attitudes to risk and volatility. It is the only ethical fund option in the UK that has both an active multi-asset allocation strategy and a three-phase risk lifecycle.
Most ethical fund options in the market invest in a single asset class, like equities or bonds.
Nest offers members a diversified portfolio of ethically-screened equities and corporate bonds, UK property with strong environmental credentials and UK government bonds.
As assets under management grow we will look for further opportunities to diversify.
In addition, most ethical funds do not actively manage risk and volatility on a lifecycle basis.
Our ethical fund manages risk and volatility in the same way our default fund does, to achieve the right return-and-risk throughout a member’s savings career.
Furthermore, our approach to ethical investment involves not only the exclusion of companies that perform badly against certain criteria and standards, but also positive engagement with companies that perform well against these.
We’ve conducted research to help us unpick what people’s top ethical considerations are and we exclude companies that perform poorly in these areas.
However, just as importantly we seek to highlight positive themes and reinforce good behaviour through proactive investment in companies that are making a positive difference.
Property, for example, is an area where shareholders can help drive greater environmental sustainability and tackle social problems.
Nest's ethical fund has around 20 per cent allocated to UK property through an external managed property fund – an actively managed fund that has won numerous awards for integrating sustainability across its portfolio – with an approach that’s driven by the recognition that the built environment has a significant impact on UK society and its ecosystem.
Over time we plan to frequently go back to our membership to make sure we are getting things right.
Understanding and learning about our members has always informed how we have developed the Nest fund range, and as people become more engaged with how their money is looked after we are committed to offering them products that are better aligned to what they want and need.
Paul Todd is assistant director of investment at Nest
