Four in five (80 per cent) employers believe it is important that a workplace pension scheme is invested responsibly, compared to 65 per cent of employees, research from Aviva has found.

According to the insurer’s Working Lives Report 2022: The Big Squeeze, a further 19 per cent of employees felt responsible investment was important but only if it did not impact the performance of their funds.

Despite the majority of workers feeling that responsible pension investment was important, 55 per cent did not know whether their workplace pension scheme was invested responsibly.

Over a third (34 per cent) of employees believed it was essential that the default pension fund was invested responsibly, while 46 per cent thought it was important but not essential.

Nearly two-thirds (61 per cent) of employers thought there was room for improvement for pension providers to improve their environmental, social and governance (ESG) investment options, according to the research.

Furthermore, climate change was found to be amongst the top three things that employers and employees felt that pension providers should take into consideration when deciding where to invest contributions.

Commenting on the findings, Aviva head of investment strategy and propositions, Maiyuresh Rajah, said: “It could be that employees and employers either consider return on investment more important than having funds invested responsibly, or that they see them as mutually exclusive in that ‘you cannot have both’.

“ESG factors are material sources of both managing investment risk and out-performance opportunities for customers. We believe integration and alignment of ESG throughout investment solutions is essential and, over the long-term, will lead to superior investment returns.

“Investment strategies that manage their social and environmental impacts and provide solutions to support the transition to a sustainable future for people and the planet should provide positive investment and sustainability outcomes.

"The landscape in which companies operate is changing and those that align to the transition and manage the associated risks - be that policy, regulation or reputational - will outperform.”

Rajah noted that while employers and employees say that climate change is an important consideration when deciding where to invest contributions, capital needs to be redirected to make an impact.

He added that employers, with the help of providers and advisers, need to help people understand the impact they can have on climate change and society through their workplace pensions.

“Pension providers can help employers make available innovative and engaging tools that can help people understand why responsible investing is important and how their investment funds fare from an ESG perspective,” he continued.

“It is important to have investment solutions within workplace pensions that integrate ESG factors into the investment process. Having ESG-focused self-select options that people can choose to invest in will be helpful but, considering that most people’s assets are invested in default funds, this is where employers and providers need to be focusing.

“Employers should look for default strategies that integrate ESG factors across the whole solution.”

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