Like many pension schemes, NEST has a set of investment beliefs that help the organisation make better decisions about how we invest members' money. One of NEST's beliefs, developed from a significant body of evidence,
sets out the importance of considering ESG risk factors.
NEST believes ‘As long-term investors, incorporating ESG factors is integral to the investment management process.' In other words, we need to think about things such as how companies and markets operate and how they treat people and the environment when we make decisions on investing members' money.
This is particularly important because many of our members will be saving through NEST for decades. Many of these issues are likely to have a material impact on the performance of the companies and other assets we invest in over long timeframes.
We have four main objectives that follow from our ESG investment belief. These objectives help guide and prioritise our activities:
Better risk adjusted return
We want to target an improvement in ESG performance where there is evidence this can lower the risk we need to take to achieve a return.
Better functioning markets
We want to improve how markets operate and are regulated in jurisdictions where we invest.
Support long-term wealth creation
We want to encourage companies and markets we invest in to deliver sustainable and stable performance to support good returns for our members over many years.
Manage reputational risks
We want to protect NEST's reputation and grow trust with our members by encouraging companies to act in ways our members can feel confident about. Companies that aren't properly run, or don't consider the environment or people in a way our members would expect, damage how they are seen and how members feel about investing.
NEST has developed its approach to responsible investment through consultation with a wide variety of stakeholders, consumer groups and industry experts. We have benefitted from ongoing input from NEST member and employer panels, and our approach has been debated at length with our investment committee and trustees.
We need to think about things such as how companies and markets operate and how they treat people and the environment when we make decisions on investing members' money.
Our approach and principles are set out at a high level in our governing document, the Statement of investment principles (SIP). Our trustees review our approach regularly as the scheme evolves and develops. Key to our ongoing development will be to increasingly involve our growing membership to understand what their expectations and needs are when investing their savings over many decades.
To find out more, read the full responsible investment report Working for change.