Your pension pot – a starting point to ESG Investing?

By Georgia Stewart, CEO and co-founder of Tumelo

The issue

Thornton T. Munger, a pioneering research scientist, once said: “The habit of saving is itself an education.” Unfortunately, across the UK, this education is lacking.

Recently, the Financial Times commissioned a piece of research by Ipsos Mori on financial literacy. The findings showed that when it came to financial education at school, 90% of the 3,194 people polled across England learnt “nothing at all” or “not very much”.

These results were reflected in a survey conducted by the investment app, Freetrade. They discovered that nearly half of UK adults lacked basic financial literacy. It may come as no surprise that the figures were even worse when analysing financial knowledge around retirement: 80% of respondents failed to answer the relevant questions correctly.

As would be expected, this vacuum of knowledge has tangible impacts; according to data referenced by AgeUK, the number of pensioners living in poverty stands at 2.1 million.

We created Tumelo to fix this problem, but more importantly to provide a platform enabling underlying shareholders to make a positive impact through their pension.

ESG investing has undeniably seen a significant rise in recent years forcing pension schemes as well as the investment industry to respond. And while organisations around the globe are implementing their own ways and processes in response, most ordinary underlying investors remain completely unaware of the correlation between ESG investing and their pension and how they too could play a role in driving a positive change simply by engaging and taking interest in their pension pots.

The solution

Clearly, there is a strong sense of apathy in the UK when it comes to pensions, despite the fact that our future financial situation and wellbeing is dependent on them. The global pandemic has compounded the monetary concerns that plague our lives, diminishing the desire to save for a significant proportion of the population. Yet we know that this ignorance can have devastating effects.

We have discovered that much of this disengagement stems from lack of understanding and poor education, as outlined above. For many, pensions represent an overwhelming mountain that seems impossible to scale. Prospective climbers have not been provided with the route or any equipment, and they do not understand how beautiful the view is when they get to the top.

According to Capita Employee Benefits’ Employee Insight Report, nearly 45% of employees would be willing to save more for their future if they were given the map and equipment they needed to reach the summit. One of our missions, therefore, is to help members truly understand how their pensions work and most importantly how they could use their voice on issues that matter to them, be it equality, climate change or human rights and be part of the ESG investing phenomenon.

Already, evidence from member behaviour last year proves that we are doing just that. Using Tumelo reduces financial anxiety, increases confidence, and prompts positive actions like learning and consolidation from pension members who were previously disengaged. We are also seeing an increasing number of members consistently engaging in shareholder resolution proposals covering a wide range of ESG issues including climate change, human rights, and animal welfare.

Last year alone, tens of thousands of votes were placed through Tumelo’s platform with active users voting around 9 times a year on average.

The power

Continuing briefly with the mountain metaphor, even those who have started their pension journey do not feel they have any agency over which route they take, or even which mountain they climb. Our solution not only helps educate investors, but it highlights how much financial power they have.

You only have to look on your social media feed to see that there is a growing wave of interest in issues regarding climate, human rights, racial diversity and gender. There is a yearning for the next generation to grow up in a world that is better than the one we live in, or at the very least, one that still exists. Consequently, stakeholders demand that more is done to positively impact our planet. Through pension investments, our aim is to make those demands a reality.

Tumelo is centred around the concept of stewardship, which is where investors vote on, and engage with, the companies into which their money is invested. We help members communicate their opinions on issues to trustees and fund managers, and we show them the impact their savings are having on the world around them.

Just like when investors have a better understanding of how pensions work, a report by Franklin Templeton finds that employees are likely to contribute significantly more into their pension if they believe it is being invested responsibly. This benefits the individual, the fund manager, the trustees and wealth managers, and ultimately, the world. In our eyes, it’s a win-win.

The result

We are already seeing the influence that stewardship can have on the strategy underpinning companies. Following a campaign by activist hedge fund Engine No. 1, alongside pension funds who have listened to their beneficiaries and claimed back stewardship responsibilities, ExxonMobil elected two new “climate-friendly” directors. Similarly, through a stewardship group known as Follow This, Chevron was mandated to cut their emissions.

The investment management giant, Black Rock, has taken note of the potential impact stewardship could have on the financial sector and, indeed, the world. In a recently published letter from Larry Fink, Black Rock Chairman and CEO, he set out the firm’s commitment “to a future where every investor – even individual investors – can have the option to participate in the proxy voting process if they choose.” For institutional clients, including pension funds that support 60 million people, this option is already available.

Fink’s public acknowledgment of the importance behind democratising investments makes clear the direction in which the world is going. He understands that in order for investors to invest, returns are no longer enough; they want to know that they are making a positive difference with their money.

The future

2022 is going to be an incredibly exciting time for Tumelo. By the end of the year, we aim to have one million active users, achieve compatibility in the US and be integrated with 55 investment platforms. Built-in voting functionality will also allow us to collect as many votes as possible from shareholders.

In terms of policy, it feels like we are very much swimming with the current, which reflects how valuable pension stewardship is viewed to be. In fact, regulations are going one step further and looking towards ‘beneficiary preference’, which essentially means asset owner’s investment decisions should be based on the preferences of shareholders.

In September 2021, the Department for Work and Pensions published a press release on recommendations put forward by the Taskforce on Pension Scheme Voting Implementation (TPSVI). The taskforce was set up by Pensions Minister, Guy Opperman MP, to encourage investment firms to engage with those investing into their pension as to where their money goes; in other words, beneficiary preference.

Likewise, the FRC’s Stewardship Code states that asset managers and owners should take into account the views of beneficiaries/clients and relay what actions have been taken as a result. The UN PRI also released an article titled, ‘Understanding and aligning with beneficiaries’ sustainability preferences’, which acts as a guide to “help asset owners learn about and incorporate beneficiary preferences, which should be a fundamental aspect of an asset owner’s investment strategy, policy and strategic asset allocation.”

To go back to the quote used at the beginning of this article, the habit of saving is undoubtedly an education and one that we hope to share with as many people as possible. However, we also hope that through Tumelo, we can unlock the power that all investors hold and genuinely change the world for the better.

By Georgia Stewart, CEO and co-founder of Tumelo

The issue

Thornton T. Munger, a pioneering research scientist, once said: “The habit of saving is itself an education.” Unfortunately, across the UK, this education is lacking.

Recently, the Financial Times commissioned a piece of research by Ipsos Mori on financial literacy. The findings showed that when it came to financial education at school, 90% of the 3,194 people polled across England learnt “nothing at all” or “not very much”.

These results were reflected in a survey conducted by the investment app, Freetrade. They discovered that nearly half of UK adults lacked basic financial literacy. It may come as no surprise that the figures were even worse when analysing financial knowledge around retirement: 80% of respondents failed to answer the relevant questions correctly.

As would be expected, this vacuum of knowledge has tangible impacts; according to data referenced by AgeUK, the number of pensioners living in poverty stands at 2.1 million.

We created Tumelo to fix this problem, but more importantly to provide a platform enabling underlying shareholders to make a positive impact through their pension.

ESG investing has undeniably seen a significant rise in recent years forcing pension schemes as well as the investment industry to respond. And while organisations around the globe are implementing their own ways and processes in response, most ordinary underlying investors remain completely unaware of the correlation between ESG investing and their pension and how they too could play a role in driving a positive change simply by engaging and taking interest in their pension pots.

The solution

Clearly, there is a strong sense of apathy in the UK when it comes to pensions, despite the fact that our future financial situation and wellbeing is dependent on them. The global pandemic has compounded the monetary concerns that plague our lives, diminishing the desire to save for a significant proportion of the population. Yet we know that this ignorance can have devastating effects.

We have discovered that much of this disengagement stems from lack of understanding and poor education, as outlined above. For many, pensions represent an overwhelming mountain that seems impossible to scale. Prospective climbers have not been provided with the route or any equipment, and they do not understand how beautiful the view is when they get to the top.

According to Capita Employee Benefits’ Employee Insight Report, nearly 45% of employees would be willing to save more for their future if they were given the map and equipment they needed to reach the summit. One of our missions, therefore, is to help members truly understand how their pensions work and most importantly how they could use their voice on issues that matter to them, be it equality, climate change or human rights and be part of the ESG investing phenomenon.

Already, evidence from member behaviour last year proves that we are doing just that. Using Tumelo reduces financial anxiety, increases confidence, and prompts positive actions like learning and consolidation from pension members who were previously disengaged. We are also seeing an increasing number of members consistently engaging in shareholder resolution proposals covering a wide range of ESG issues including climate change, human rights, and animal welfare.

Last year alone, tens of thousands of votes were placed through Tumelo’s platform with active users voting around 9 times a year on average.

The power

Continuing briefly with the mountain metaphor, even those who have started their pension journey do not feel they have any agency over which route they take, or even which mountain they climb. Our solution not only helps educate investors, but it highlights how much financial power they have.

You only have to look on your social media feed to see that there is a growing wave of interest in issues regarding climate, human rights, racial diversity and gender. There is a yearning for the next generation to grow up in a world that is better than the one we live in, or at the very least, one that still exists. Consequently, stakeholders demand that more is done to positively impact our planet. Through pension investments, our aim is to make those demands a reality.

Tumelo is centred around the concept of stewardship, which is where investors vote on, and engage with, the companies into which their money is invested. We help members communicate their opinions on issues to trustees and fund managers, and we show them the impact their savings are having on the world around them.

Just like when investors have a better understanding of how pensions work, a report by Franklin Templeton finds that employees are likely to contribute significantly more into their pension if they believe it is being invested responsibly. This benefits the individual, the fund manager, the trustees and wealth managers, and ultimately, the world. In our eyes, it’s a win-win.

The result

We are already seeing the influence that stewardship can have on the strategy underpinning companies. Following a campaign by activist hedge fund Engine No. 1, alongside pension funds who have listened to their beneficiaries and claimed back stewardship responsibilities, ExxonMobil elected two new “climate-friendly” directors. Similarly, through a stewardship group known as Follow This, Chevron was mandated to cut their emissions.

The investment management giant, Black Rock, has taken note of the potential impact stewardship could have on the financial sector and, indeed, the world. In a recently published letter from Larry Fink, Black Rock Chairman and CEO, he set out the firm’s commitment “to a future where every investor – even individual investors – can have the option to participate in the proxy voting process if they choose.” For institutional clients, including pension funds that support 60 million people, this option is already available.

Fink’s public acknowledgment of the importance behind democratising investments makes clear the direction in which the world is going. He understands that in order for investors to invest, returns are no longer enough; they want to know that they are making a positive difference with their money.

The future

2022 is going to be an incredibly exciting time for Tumelo. By the end of the year, we aim to have one million active users, achieve compatibility in the US and be integrated with 55 investment platforms. Built-in voting functionality will also allow us to collect as many votes as possible from shareholders.

In terms of policy, it feels like we are very much swimming with the current, which reflects how valuable pension stewardship is viewed to be. In fact, regulations are going one step further and looking towards ‘beneficiary preference’, which essentially means asset owner’s investment decisions should be based on the preferences of shareholders.

In September 2021, the Department for Work and Pensions published a press release on recommendations put forward by the Taskforce on Pension Scheme Voting Implementation (TPSVI). The taskforce was set up by Pensions Minister, Guy Opperman MP, to encourage investment firms to engage with those investing into their pension as to where their money goes; in other words, beneficiary preference.

Likewise, the FRC’s Stewardship Code states that asset managers and owners should take into account the views of beneficiaries/clients and relay what actions have been taken as a result. The UN PRI also released an article titled, ‘Understanding and aligning with beneficiaries’ sustainability preferences’, which acts as a guide to “help asset owners learn about and incorporate beneficiary preferences, which should be a fundamental aspect of an asset owner’s investment strategy, policy and strategic asset allocation.”

To go back to the quote used at the beginning of this article, the habit of saving is undoubtedly an education and one that we hope to share with as many people as possible. However, we also hope that through Tumelo, we can unlock the power that all investors hold and genuinely change the world for the better.