What is responsible investing?
Responsible investing is a large and complex topic. This section of the website aims to give you an introduction to the subject and signpost you to further information and details if you’d like to learn more.
We will update this section of the site over time as our work on responsible investing continues.
What is responsible investing?
The money in pension schemes, like the Nestlé UK Pension Fund (‘the Fund’), is invested to help it grow. It’s typically invested in things like company shares (equities), company debt (corporate bonds) and government bonds (gilts), as well as other types of assets, in different parts of the world.
The overriding objective of the Fund’s Trustees is to invest the Fund’s assets in the best interests of its members and their beneficiaries. Indeed, the law requires Trustees to act in the best financial interests of Fund members and beneficiaries when exercising their investment powers.
In setting their investment strategy, the Trustees consider many factors, including:
- Choosing investments that are in the best financial interests of the Fund members,
- The risks involved in different types of investments and the possible returns that may be achieved, and
- An appropriate level of diversification of the Fund’s investments.
The Trustees are also bound by certain regulations when it comes to choosing investments.
Part of these considerations also include responsible investing.
Responsible investing is a way of setting an investment strategy that aims to make positive investment returns (to help the money to grow) while at the same time taking into account environmental, social and governance (ESG) issues when making investment decisions. The aim is to reduce risk, improve investment returns and try to contribute to a sustainable world.
What are environmental, social and governance (ESG) factors?
ESG stands for environmental, social and governance.
Pension schemes that incorporate ESG factors into their investment strategy aim to consider how the following factors can have a financial impact on investments:
Environmental
Do the companies that we are invested in have a positive or negative impact on resources and environment?
This can include:
- Climate change
- Biodiversity
- Deforestation
- Water consumption
Social
How do the companies that we are invested in treat their employees, customers and community?
This can include:
- Employee wellbeing
- Human rights
- Diversity, equity and inclusion
- Supply chain management
Governance
Do the companies that we are invested in structure their leadership to allow for accountability and leadership?
This can include:
- Board structure
- Executive remuneration
- Tax fairness
- Bribery and corruption
As investors, pension schemes take these factors into account when setting their investment strategy and deciding where to invest the scheme’s assets.
What does responsible investing mean for pension schemes?
The UK regulatory landscape around responsible investment is evolving all the time. This means that, increasingly, pension schemes have a legal requirement to make information publicly available about how they invest responsibly.
For example, most pension fund trustees now need to produce a Taskforce on Climate-related Financial Disclosures (TCFD) report each year. The TCFD was commissioned in 2015 by Mark Carney in his remit as Chair of the Financial Stability Board. In 2017, the TCFD published its recommendations for improved transparency by companies, asset managers, asset owners, banks, and insurance companies for how climate related risks and opportunities are being managed.
As a result of this, each year pension fund trustees need to produce a report that sets out their approach for the assessment, ongoing management and mitigation of climate-related risks and opportunities.
Read the Fund’s latest TCFD report