The PRI has researched how beneficiary preferences have been understood to date and how PRI signatories seek to improve their understanding of this topic.
Understanding beneficiaries’ ESG and sustainability preferences is of increasing importance to asset owners. The UN PRI organization which seek to help asset owners learn about and incorporate beneficiary preferences, a fundamental aspect of an asset owner’s investment strategy, policy and strategic asset allocation has released a short guide entitled – Understanding and alining with beneficairies’ sustainability preferences.
A total of 14 signatories, primarily asset owners, have shared their views with the PRI, including leading practices to follow, challenges they encountered and how these may be overcome.
Why incorporate beneficiary sustainability preferences? A first section of the guide explains what is prompting asset owners to seek out and incorporate preferences, what are the benefits of doing so and what is known about preferences to date.
Beneficiaries are major suppliers of capital that allow the financial system to function and the field of responsible investment to exist. It is paramount that investors understand their true interests and place them at the centre of investment decision-making. While beneficiary interests have often been interpreted as solely being about seeking a certain financial return, it has become clear that many beneficiaries have preferences related to the sustainability performance of their investments. They are also increasingly aware that these investments affect them in other capacities: as employees, consumers, community members and citizens.
Increasing consultation with beneficiaries has been driven by several factors: an evolving regulatory landscape; an increased acknowledgment among asset owners that investments should reflect the values of their beneficiaries; the benefits realised by asset owners in doing so; and awareness among beneficiaries of the role and power their savings play in the world, informed by media coverage and campaigns.
This shift presents asset owners with a significant opportunity to improve the satisfaction and engagement of beneficiaries by aligning investment practices with beneficiary preferences, thereby building a virtuous cycle where both parties see the benefits of engagement.
It is not yet commonplace for asset owners to be required to proactively incorporate the preferences of beneficiaries in their strategy or decision-making. However, recent trends indicate that greater consideration of beneficiaries’ preferences and holistic interests are likely to be a focus of sustainable finance policy going forward.
Engaging with beneficiaries on their preferences provides asset owners with the opportunity to improve beneficiaries’ understanding and perception of their investments, demonstrating how beneficiaries’ savings interact with their everyday lives and the positive outcomes to which those savings may contribute.
Particularly among pension funds, there is often a lack of engagement from beneficiaries with their retirement savings.
Beneficiary interest in sustainable investment has “increased significantly” in recent years. Various surveys globally indicate that beneficiaries increasingly expect their money to be invested responsibly and, in some cases, express a willingness to forgo financial returns to achieve sustainability impact:
- In 2019, the UK’s largest ever survey on sustainable investing found 68% of savers want their investments to consider the impact on people and the planet alongside financial performance.
- Two academic surveys saw 68% of respondent beneficiaries of a Dutch pension fund voting for intensified engagement based on the Sustainable Development Goals (SDGs). A majority of those who believed this would lead to lower financial returns still opted for the change.
- A survey in the aftermath of the 2019-20 Australian fires found 4 in 5 Australians would like their super fund and banks to communicate the positive and negative outcomes of investments and savings.
- A 2020 survey found 60% of New Zealanders would be motivated to save and invest more money to make a positive difference to the environment and society.
- The median participant in a recent US study preferred a more sustainable fund option even if it meant sacrificing a 2.5% annual return.
- A study found low levels of awareness regarding responsible investing of pension funds in Japan, but greater favorability among informed savers towards responsible investing.
- A 2015 YouGov global survey commissioned by the PRI found over 90% of beneficiaries in Brazil and South Africa supported responsible investment, while most beneficiaries in these regions deemed it “very important” that their pensions were not invested in fossil fuel companies.
How to understand and align with beneficiary preferences? The second section of this guide is a four-step process for understanding the core values with which beneficiaries wish investments to be consistent and how asset owners can deliver.
The PRI guide is available here