Employee benefits are not usually at the forefront of our minds when we are considering workplace culture. Yet they can play an important role both in facilitating the culture of an organisation and in demonstrating how inclusive and diverse a workplace really is. In this article, we explain how workplace culture can be promoted by the growing interest in ESG investments, improved pension disclosure duties, the choice of nominations to trustee boards/governance committees and the choice of benefits provided to employees.
Facilitating the culture
Ownership of capital
Pension schemes are significant owners of corporate and third sector equity, debt and infrastructure, and this gives them the ability to influence the direction of those corporates and organisations.
Until recently the main focus for pension scheme owners and managers has been the returns generated by the capital. Provided these were satisfactory, other issues were not seen as a priority. This has also been reflected in the legal duties which discourage the use of assets for "political" activism and focus the owners and managers' obligations on securing the best returns for members of the pension scheme.
But this is changing; partly because of a greater emphasis on environmental, social and governance issues, and also due to increased transparency requirements.
Environmental, social and governance (ESG) issues
ESG is a growing feature in pension scheme investment strategies. Employees in most workplace pension schemes will have the option to invest in ESG funds, although employees usually remain in default funds which are not exclusively focussed on ESG factors.
That said, ESG investments are expected to develop over the next few years, to a large degree prompted by legal challenges. Legal action has already been brought in relation to pension schemes with carbon intensive investments which impact on climate change, including one filed against an Australian pension fund which is due to be heard in the Australian courts in November 2020.
New transparency requirements
The following changes have been made to the disclosures which UK pension schemes must make:
- Since October 2019, most occupational pension schemes are required to explain their engagement and voting policies in the Statement of Investment Principles which is available for review by members and, in some cases, published on a public website.
- From 1 October 2020, the information included in the Statement of Investment Principles has been extended to the arrangements made with Asset Managers, requiring better liaison between pension schemes and asset managers.
- Before 1 October 2021, most occupational pension schemes will be required to produce implementation statements confirming how they are doing against their stated engagement and voting policies. These statements must be published in the annual reports available to members, and also published on a public website.
The Local Government Pension Scheme (the only funded major public sector pension scheme) is already required to provide transparent information about its investment strategy.
What more ESG funds and better disclosures mean
These developments mean that more information is available, enabling employees who are members of these pension schemes to ask more informed questions of trustees and managers.
In turn, asset owners and managers will be expected to ask more questions of the corporates and third sector organisations in which they invest. For example, the Church Investors Group (whose funds include the Church of England's pension schemes) have a published voting policy on executive pay, gender diversity and climate change, which influences how the boards of the corporates and organisations in which these pension schemes are invested regard these issues.
While during the Covid-19 pandemic there has of course been considerable focus on health and job security issues, there is evidence that there has been greater engagement with financial matters, especially by professionals and politically active employees who may have been working from home, and have therefore possibly had more time to research these issues.
This is a developing area and it is important that employers are mindful of the views of their employees and investors.
For employers with an occupational pension scheme or a governance committee, the composition of the trustee or committee board provides an opportunity to demonstrate their diversity and inclusion culture through the appointment choices they make. At the same time, studies show that diversity on boards and committees has a positive impact.
With a majority of employees now in group or personal pension schemes (including automatic enrolment compliant arrangements), the scope for employers to directly shape behaviours through governance control has reduced. Nevertheless, employers can offer pension schemes which have responsible or sustainable investment options, and where there is a governance committee, it can be used to facilitate discussions on culture and behaviours with the provider.
Other employee benefits
Employers offering other employee benefits (such as child care support, health benefits, death in service cover) also have an opportunity to shape these, with a focus on diversity and inclusion.
While the introduction of flexible packages in recent years has allowed employees to pick from a range of benefits and choose those most relevant to them, individual benefits are often procured on a "one choice for all" basis. And this will not take account of diverse circumstances, whether this is on the basis of age, gender, race, religion or belief, or otherwise.
Employers wishing to improve diversity and inclusion issues in their workplace may wish to revisit the benefits they have made available to ensure that they are suitable for all their employees, and that they reflect the workplace culture the business intends to promote.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.