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Responsible investment

NEST as a responsible investor

Our members save with NEST over many years. This means we need to think carefully about all the investment factors that could impact their pot over the long term.

This includes considering how companies and markets operate and how they treat people and the environment when we make decisions on investing members’ money. These issues are likely to affect the performance of the companies and other assets we invest in to grow our members’ money over many years.

NEST believes organisations that are well-run with sound environmental and social practices have a better chance of sustaining long-term success and profitability. By focusing on sustainable practices, we’re looking to boost and protect our members’ pots.

That’s why NEST has worked with UBS to develop their Life Climate Aware World Equity fund. We need to prepare our members’ portfolios for the transition to a low carbon global economy. As one of our ‘building blocks’, this fund now forms a key part of our investment strategy.

We also want to benefit society and the environment our members live and retire in.
NEST applies this approach to all our Retirement Date Funds and fund choices.

Why NEST invests responsibly

NEST has a set of investment beliefs that helps the organisation make better decisions about how we invest members’ money. One of NEST’s beliefs is that ‘As long-term investors, incorporating environmental, social and governance (ESG) factors is integral to the investment management process.’

Following on from this we have four main objectives that help guide and prioritise our activities:

Better risk adjusted returns - we want to target an improvement in ESG performance where there is evidence doing so can lower the amount of risk we need to take in order to achieve a return.

Better functioning markets - we want to improve how markets operate and are regulated in jurisdictions where we invest.

Support long-term wealth creation - we want to encourage companies we invest in to deliver sustainable and stable performance to support good returns for our members over many years.

Manage reputational risks - we want to protect NEST’s reputation and grow trust with our members by encouraging companies to act in ways our members can feel confident about. Companies that aren’t properly run, or don’t consider the environment or people in a way our members would expect, damage how they are seen and how members feel about investing.

Find out more by reading our Responsible investment objectives document (PDF).

More about NEST’s investment governance:

How NEST invests responsibly

How we choose fund managers, being an active owner by engaging and voting, and monitoring ESG risks and opportunities are the main ways we act as a responsible investor.

Ethical Fund responsible investor image

Click on each tab to find out more

When we look for fund managers to run our mandates our requirements cover what we expect from them in managing ESG risks and opportunities.

This includes how they assess and incorporate ESG factors in their investment process and their voting and engagement activities.

We expect our fund managers to demonstrate how both managing the risks and harnessing the opportunities can enhance the long-term risk and return of our investments.

Where appropriate we can award focused ESG mandates. These remove high risk investments prevalent in a certain asset class. For example, we procured an emerging market equities fund that doesn’t invest in companies with the largest ESG risks.

Fund managers regularly report progress of their activities. You can read about progress in our Quarterly investment reports.

Active ownership is about how we engage with companies to support better ESG performance and how we vote the shares we look after on NEST members’ behalf.

Most shares give their owners a right to vote on some company decisions, including things like whether to take over another company or approve the amount senior executives are paid. Voting usually takes place at each company’s AGM.

Our fund managers vote the shares NEST owns on behalf of our members in line with their own firm’s voting policies. However we’ve also developed our own voting and engagement policy. This sets out a NEST viewpoint on important areas and tells our fund managers how we expect companies to consider key issues.

Where we don’t agree on how our global equity fund manager plans to vote on an issue we feel strongly about, we can override this and vote in accordance with NEST’s views.

Each year we publish our Voting summary report setting out how all our fund managers have voted and how this compares to NEST’s voting policy.

You can find out more about our engagement activities in the case studies below. Our fund managers’ reports are available at the bottom of this page.

Read our Active ownership policy (PDF)

Read the latest proxy voting report (PDF)

Read the previous reports

NEST proxy voting report 2015 

NEST proxy voting report 2013

NEST has developed a risk management model to identify where companies we invest in have a poor ESG performance and to help them improve their performance. The model scores companies on their environmental, social, governance and financial performance.

The model has helped us identify and prioritise three key risks:

  • how companies treat the environment: we’re addressing this through a focus on companies’ greenhouse gas emissions that contribute to climate change
  • how companies interact with others: we’re addressing this through a focus on conduct, culture, and staff reward and progression
  • how companies lead and organise themselves: we’re addressing this through a focus on audit and dividends that contribute to public and investor confidence and trust

As we grow and our investment function evolves, we will begin to incorporate ESG risk factors into our asset allocation decisions more prominently. This could include, for example, how we’ll manage our exposure to carbon intensive stocks as the world moves to a low carbon economy.

For the time being, our activities as a responsible investor are mostly focused on the other elements described.

Working for change together

Read about how we work with partners, initiatives and codes to achieve our responsible investment objectives.                                                     

Read more here

Statement of investment principles

Find out more about the investment governance around NEST as a responsible investor by reading our Statement of Investment Principles.

Read more here

Case studies

To find out how we have been working for change in four key areas.

Climate change

NEST is helping to address climate change by:

  • encouraging our investee energy companies to diversify their energy portfolios and transition towards a low carbon economy
  • monitoring a variety of risk factors and opportunities at different levels of the investment process
  • taking collective action including signing the Paris Pledge (opens in a new window) and joining investor organisations looking to tackle climate change

Banking conduct and culture

NEST invests in all of the large global banks. It’s clearly in our members’ interests to encourage all banks to work together to share good practice and help them improve their cultures and conducts.

We’ve been working to:

  • understand what excellent and poor practice looks like
  • understand whether the indicators banks are using to measure change in conduct and culture are moving, and in which direction
  • keep the pressure on banks to make lasting, positive changes to conduct and culture

We want to support banks by researching and sharing practices more likely to build trust and support sustainable returns.

Understanding fair pay

We want to know the companies we invest in are treating their people decently. This includes having insight into things like pay and how staff are developed. By understanding companies’ approaches to their people, we can be more confident those we invest in are building long-term sustainable and successful businesses.

We’re working with employers to understand why:

  • they may use employment practices such as zero hours contracts
  • they have different viewpoints on training and benefits

We want to work with employers to make more informed decisions when we vote and engage.

Audit best practice

Investors rely on financial statements and reporting to tell them how companies are doing. These are completed by independent auditors who are overseen by the audit committees of companies.  Having an independent and unbiased audit helps us trust what we’re told by the company. If we can’t trust what a company is saying about how it’s being run, then we cannot be confident about investing.

In recent years there’s been growing evidence audit committees have not always ensured high quality audits.

NEST is working with audit committees in different companies to understand and share best practice. We want to support high quality audits in the interests of investors including our members.

Fund manager reports

As at December 2015

BMO All Votes Report December 2015 (PDF)
BMO Votes Against Management Report December 2015 (PDF)
HSBC Amanah Voting Report December 2015 (PDF)
HSBC GIF Global Emerging Markets EIS Voting Report December 2015 (PDF)
LGIM Global Real Estate Equity Index Fund Voting Report December 2015 (PDF)
Northern Trust Proxy Voting Report December 2015 (PDF)
UBS Proxy Voting Report December 2015 (PDF)
UBS Responsible Investment Report December 2015 (PDF)

As at September 2015
BMO All Votes Report September 2015 (PDF)
BMO Votes Against Management Report September 2015 (PDF)
HSBC Amanah Voting Report September 2015 (PDF)
HSBC GIF Global Emerging Markets EIS Voting Report September 2015 (PDF)
LGIM Global Real Estate Equity Index Fund Voting Report September 2015 (PDF)
Northern Trust Proxy Voting Report September 2015 (PDF)
UBS Proxy Voting Report September 2015 (PDF)
UBS Responsible Investment Report September 2015 (PDF)

As at June 2015
BMO All Votes Report June 2015 (PDF)
BMO Votes Against Management Report June 2015 (PDF)
HSBC Amanah Voting Report June 2015 (PDF)
HSBC GIF Global Emerging Markets EIS Voting Report June 2015 (PDF)
LGIM Global Real Estate Equity Index Fund Voting Report June 2015 (PDF)
Northern Trust Proxy Voting Report June 2015 (PDF)
UBS Proxy Voting Report June 2015 (PDF)
UBS Responsible Investment Report June 2015 (PDF)

As at March 2015
F&C Investments All Votes Report March 2015 (PDF)
F&C Investments Votes Against Management Report March 2015 (PDF)
HSBC Amanah Voting Report March 2015 (PDF)
LGIM Global Real Estate Equity Index Fund Voting Report March 2015 (PDF)
Northern Trust Proxy Voting Report March 2015 (PDF)
UBS Proxy Voting Report March 2015 (PDF)
UBS Responsible Investment Report March 2015 (PDF)