PRI issues four-step guide to incorporating ESG into beneficiary preferences

By ESG Clarity

The Principles for Responsible Investment (PRI) has released a guide to asset owners on implementing beneficiaries’ preferences on ESG issues within their investments.

The PRI has come up with a four step process for wealth managers to follow in order to understand and integrate the values of their clients, as well as the benefits of investing sustainably, after consulting with 14 of its signatories.

PRI CEO Fiona Reynolds commented: “Although asset owners in most jurisdictions are not legally required to incorporate the preferences of beneficiaries into their decision-making, many do, as factoring in beneficiary views is both important and necessary. All pension funds should have an understanding of their beneficiaries’ views on how they want their money to be managed.

“All asset owners have a real opportunity to improve the satisfaction and engagement of their beneficiaries by aligning investment practices with beneficiary preferences, thereby cultivating valuable dialogue and loyalty. In addition to ensuring that beneficiaries have income in retirement, asset owners also need to be thinking about the world they want to retire into – and that is one that has a more sustainable financial system.”

The four-step process is advised as follows:

1. Define engagement bbjectives: Asset owners should understand what information they are seeking to obtain and communicate, and what investment practices they are prepared to change in response to beneficiary feedback.

2. Engage beneficiaries: Asset owners should combine various methods to seek beneficiaries’ preferences including surveys, focus groups, interviews, beneficiary representation on trustee boards, research and data analysis, and understanding beneficiary campaigns. PRI also recommends strategies to overcome common challenges, such as knowledge gaps, low beneficiary engagement, and limited capacity.

3. Put preferences into practice: Asset owners can reflect beneficiary preferences in investment strategies in several ways, such as making changes to capital allocations, dedicating further resources to company and policy engagement on priority issues, and shaping sustainability outcomes. Asset owners should also communicate the key priorities identified from beneficiary engagement to their service providers and embed consideration of beneficiary preferences into the asset manager selection, appointment and monitoring processes.

4. Report back to beneficiaries: Beneficiaries need clear and transparent communication about how their money is invested and the outcomes of their investments. Communicating with beneficiaries about the results of an engagement will increase beneficiaries’ sense of ownership over their savings while maintaining that the asset owner is updated on changing trends and preferences.

Among the signatories consulted about their efforts to better understand and align with their beneficiaries’ values were Marion Maloney of Environment Agency Pension Fund, Xander den Uyl of ABP, and Xinting Jia of CareSuper

ABP’s den Uyl said: “We welcome the growing interest of beneficiaries in how their money is invested, looking critically at climate, human rights and other outcomes. For ABP, it is our aim and our duty to have a constructive dialogue with our beneficiaries on these issues so we can incorporate their preferences in our responsible investment policy.”

The full PRI report and a survey template to use with beneficiaries can be viewed here.