LONDON (Thomson Reuters Foundation) - Britain is mulling legal reform to encourage pension funds to invest more of their billions in businesses with a positive social impact, such as green energy and social housing.
Millions more people are putting aside money for their retirement following the introduction of auto-enrolment, where companies automatically sign staff up to pension schemes.
“Pension schemes represent one of the biggest pools of opportunity to grow social impact investment,” the ministers for pensions and civil society said in a report this week.
“Given the increasing size of the pension market, if trustees choose to make even modest allocations to investments that generate both a social and financial return, the effect could be transformative.”
Auto-enrolment was introduced amid concern that people were saving less into pensions amid rising life expectancy.
More than 8 million employees have signed up for a workplace pension since its 2012 launch, government data shows.
It predicts that money from defined contribution pensions - based on the amount of money paid into the pot, unlike those based on final salaries - will grow six-fold to 1.7 trillion pounds ($2.27 trillion) by 2030.
In 2016, the government asked the Law Commission, which reviews and suggests legal reforms, to consider how far pension funds should consider social impacts when investing.
The Law Commission proposed in June that laws be amended so that pension funds have to include information on the social impact of investments and consider customers’ ethical concerns.
“It is possible to do well and do good at the same time,” a spokesman for the Law Commission said in emailed comments.
“We’ve seen billions invested in social investments including infrastructure in places like Australia, delivering for savers and society.”
The government welcomed the recommendations and said that it plans to make it easier for pension schemes to invest in assets that can “do good”, as well as delivering market returns.
“The expertise that lies outside government - in charities, social enterprises, SMEs, pension schemes and big business - is integral to delivering solutions for social challenges in the UK,” its report said.
The commission also recommended that the Financial Conduct Authority, the UK’s financial watchdog, issue guidance on how pension providers can consider non-financial factors, such as social impact, when investing.
Reporting by Lee Mannion @leemannion. Editing by Katy Migiro. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers humanitarian news, women's rights, trafficking, property rights, climate change and resilience. Visit news.trust.org