Seventy-two per cent of defined contribution members believe that it is a good idea to include responsible or ethical investments in default funds, according to Invesco.

The ReDefined Contribution Schemes study is part of the largest study ever undertaken into the language of pensions, and included interviews with heads of pensions schemes, focus groups to capture emotional responses to words and phrases, and a survey of UK employees to 500 pension scheme members. It also included unique instant response dials that more accurately captured the emotional responses members had to language.

Of the respondents to the survey, 82 per cent are in favour of their pension being automatically invested into a company that meets certain ethical standards; just 18 per cent see this as a bad idea.

Furthermore, 46 per cent of those surveyed indicated they would invest in a funds that only invests in socially and environmentally responsible companies with returns of 6 per cent a year, rather than a fund that includes all types of companies with returns of 6.5 per cent a year. If both funds delivered the same historical returns of 6 per cebt a year, three fifths (60 per cent) of employees surveyed would rather invest in the responsible option.

The responses defined a “clear shift” in member attitudes to responsible investments, according to Invesco UK institutional sales director, Stephen Messenger. “The fact that a significant proportion of employees are willing to sacrifice slightly lower returns for funds that invest in socially and environmentally responsible companies clearly highlights that responsible investment is a priority for employees.

“We expect a growing number of schemes to continue moving towards integrating responsible investments into their investment processes, and it is an item that will be at the top of trustees’ agendas,” he said.

Despite a clear appetite for environmental, social and governance investing (ESG), the term ESG is unpopular with scheme members. When asked which is the best name for a fund that seeks to do good in the world while also generating good returns?, responsible investment was the preferred term for 42 per cent of respondents, with 30 per cent favouring the phrase ethical investment. Only 14 per cent said environmental, social and governance investment as the preferred option.

The study also revealed a preference for positive language when being informed about responsible investments. Over three quarters (77 per cent) believe that the best way to talk about a responsible investment is by describing it as a fund that invests in companies that meet standards for doing environmental and social good. Language that focused on the negative connotations was only favoured by 23 per cent who preferred the term does not invest in companies that do not meet standards for doing environmental and social good.

Commenting, Invesco Consulting director Gary DeMoss: “Responsible and ethical investing is clearly a priority for many employees, so it is becoming increasingly important for pension schemes to consider the exact language they are using when communicating with their scheme members about the funds they are invested in.

“The fact that only 14 per cent of respondents prefer the term ESG clearly highlights the communication challenge pension trusts face; this has been amplified by the overuse of industry jargon. At a time when it is crucial to encourage employees to think about their financial futures, it has never been more important for schemes to carefully consider their engagement strategies to improve conversations.”

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