Legal & General Investment Management’s (LGIM) latest research reveals that Defined Contribution (DC) pension scheme members continue to prioritise ESG investing, even amid the cost-of-living crisis and global economic instability.
The survey, involving over 4,000 UK DC members, indicates that financial strain has not dampened their enthusiasm for ESG investments. Despite price hikes, 65% are more inclined to invest in renewable energy and sustainable food production to bolster the UK’s long-term economic resilience.
A key finding is the members’ willingness to pay higher fees for ESG-focused private market assets, like renewable energy infrastructure and affordable housing, provided these investments show solid performance. This comes amidst discussions about the inclusion of private markets in DC pensions following the Mansion House Compact in the summer.
However, the appetite for illiquid assets is contingent on their performance, especially among younger generations. Only 22% of Generation Z would pay more for such investments without guaranteed performance, in contrast to 7% of Baby Boomers.
Generation Z members, increasingly influential in pension schemes, exhibit a strong preference for ESG-focused investments. An overwhelming 93% want reduced pension investments in fossil fuels. Additionally, 72% believe that pension funds with net zero targets will outperform those without.
Overall, DC members prefer engaging with companies to improve their ESG practices rather than immediate divestment. This approach, however, changes when it comes to companies with poor social practices, with members being less forgiving.
Rita Butler-Jones, head of defined contribution (DC) at LGIM, said, “Despite the financial pressures and systemic challenges we are currently seeing around the world, it’s clear that ESG remains central to many members’ attitudes about how they want their pension to be invested.”
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