We’re a pension provider with a strong focus on social responsibility. So, we want our members’ pension savings to grow, but we also want to invest savings for the good of the planet, society and our members’ future.
This is why we’ve designed our investment approach around three Rs: return, risk and real-world impact.
- Return – the level of growth we want our investments to achieve.
- Risk – the amount of risk we’re prepared to take to achieve that growth.
- Real-world impact – the kind of companies and projects we invest in and how we manage them.
Reviewing our investments
At least every three years we review the investments to make sure they are producing the kind of results we want and that the real-world impact is in line with our responsible investment beliefs.
The most recent investment review in 2023 included the following changes.
- Going for growth: we’ve made changes to our default investment strategy over members’ working lives, and lengthened the time their pension savings spend in growth investments.
- Keeping things simple: as most members take their pension savings as cash or transfer out, we’re focusing on maximising members’ savings for those outcomes. And a simpler strategy is easier for members to understand and to compare with other providers.
- Investing for a better world: we’re putting even more emphasis on the real-world impact of our investments. A key part of this is stewardship, where we use our power as a shareholder to influence the companies we invest in to improve the world we live in, for example to reduce their carbon footprint and become more sustainable.
We put these changes into practice in January 2024 and the benefits are already being seen. Since then, our main growth fund, the Diversified Growth Fund, has consistently met or exceeded its investment target.
Going for growth
We take a whole-of-life approach to members’ pension savings with a three-phase pension journey for our default investment strategy.
- Growth phase, focusing on long-term growth.
- De-risking phase, aiming to reduce the risk of falls in value as our members approach their retirement age.
- Destination phase, where members start to use their pension savings for retirement income.
Previously, the de-risking phase was 15 years. By reducing it to 10 years, we aim to achieve more growth over members’ working lives, before they move into the de-risking period.
Keeping things simple
Our previous investment strategy included a variety of different assets and methods, which we used to help manage returns in uncertain markets. More recently we’ve decided to simplify things instead, to make it easier for members to understand and to compare to other providers.
Investing for a better world
We believe global warming is not only bad for the planet, but bad for our members’ investments too. If we don’t limit temperature increases to 1.5 – 2 degrees above pre-industrial levels, we believe there is a reasonably likely scenario which negatively impacts economies around the world, leading to higher inflation and lower investment returns. We want to use our power as an investor to help tackle the risks from climate change.
We’re committed to achieving net zero – where we don’t add to the greenhouse gases in the atmosphere – by 2050 through our investments. But this doesn’t mean we stop investing in companies and industries that currently produce greenhouse gases. Doing this might make a statement, but it wouldn’t contribute meaningfully to reducing global carbon emissions.
Instead, we invest in companies that are making an effort to clean up their act and use our buying and voting power as shareholders to influence them, helping them reduce their carbon emissions and improve their sustainable business practices. This is known as stewardship.
To make our stewardship more effective, we no longer use third-party investment managers. Cardano Risk Management Ltd, our investment manager, now holds most of the equity investments directly.
We’ve also increased our minimum target holding of responsible investments from half (50%) of the total assets up to three-quarters (75%). We expect this to increase over time.
What we invest in
Equities (shares in companies)
We engage companies we invest in to help them reduce their carbon footprint.
Bonds (loans to companies and governments, with a promise of repayment, plus interest at a later date).
These include global green and sustainable bonds and high-quality government and company bonds. For company bonds, we engage companies we invest in to help them reduce their carbon footprint.
Other investments
This includes other types of investment such as cash and commodities (for example, gold and industrial metals).
The results
We’ve already seen the benefit of our new approach on behalf of our members. In the 12 months to 31 August 2024, the Diversified Growth Fund (the growth fund of the default investment strategy) returned 14.9%, compared to the investment objective of 6.1%.
We’ll continue to monitor and tweak the investment strategy to deliver long-term results, while contributing to a better world.
