Recently there has been a fundamental shift in the way stakeholders – such as businesses, investors and government – view environmental, social and governance issues (ESG).

The term is broad; it covers a range of topics, from climate change strategies to labour standards in supply chains. It is about understanding an investee company’s approach to governance, societal impacts and environmental considerations, and the associated investment risks (or rewards) for the investor.

Anna Copestake noted that even though pension funds may now be taking ESG risks more seriously, there is still work to be done.

Anna said that it is still common for trustees to concentrate their efforts on one part of a portfolio, in particular defined contribution (DC) schemes that offer an ethical self-selected fund for members.

“Those trustees should consider how the default option, and other funds on offer, fit with their ESG strategy, and check that the ethical fund does not risk significant financial detriment. This would mean it shouldn’t be offered even if members would agree with its objectives.”

Read Anna’s comments in Pensions Age