Aviva has launched a defined contribution (DC) default investment strategy for its workplace pension clients, incorporating ethical and ESG considerations.

The strategy – which launched last month – is based solely on the Aviva stewardship funds opened in 1984, it said.

The Stewardship Lifestyle Strategy integrates ethical and ESG considerations throughout savers’ growth and consolidation phases, meaning they are used until a members’ selected retirement date regardless of when they first invested.

The approach sees environmentally or socially harmful companies excluded from the strategy’s investment portfolio, including those with significant involvement with tobacco, pornography, and fossil fuels.

Speaking to PA’s sister title Professional Pensions, Aviva head of workplace propositions Matt McGill said there has been an increased demand from both clients and scheme members around ESG and ethical considerations.

“Our first client invested in the fund as their default in June, prior to the launch, and we are seeing a fairly significant demand,” he said. “We’ve got a large number of charities and non-governmental organisations with Aviva, and they are an obvious target for these kinds of solutions.”

Businesses which have their workplace pension scheme with Aviva will be able to use the fund as their default, or can offer it to members as an alternative.

Engaging members

Also speaking to Professional Pension, Aviva Investors chief responsible investment officer Steve Waygood said he believes these types of funds will engage members with their pension savings.

“There are a lot of big failures at the moment within the capital markets, one of them being members having very little understanding of where their money is being invested,” he said. “There is a huge deficit in financial literacy.”

He also argued that, following the behavioural finance nudge of auto-enrolment, which has brought over 10 million into workplace pensions, members need to understand where their money is being invested.

He added: “A demand for this kind of an approach from the end investor is hugely important. Historically, we’ve seen a lot of pushes from governments and intergovernmental organisations that are saying how you need to invest sustainably and responsibly.

“But it is only when you have demand from the end investor that I think the market itself stops failing in this area. Issues like climate change and equal opportunities – such as having women on boards – and anti-bribery, are all things that investors should be looking at every day.”

The news follows The Pensions Regulator updating its DC investment guidance to reflect changes to regulations which will require schemes to disclose their investment approaches to ESG considerations.

Last week, the House of Commons passed legislation to require the UK to achieve net-zero carbon emissions by 2050 and pension funds are being urged to lead investment in this arena.

Aviva is not the first pension provider to incorporate ESG into its default. Last year, Willis Towers Watson’s master trust, LifeSight, introduced a new strategy which allocates 56% of equity investments in the default fund to ESG strategies. Last month, NEST announced its intention to complete divest from tobacco and, in 2017, it also partnered with UBS to reduce exposure to climate change risk.

This is reproduced from Professional Adviser; all views are from the publication. This originally appeared online on 2 July 2019.