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Responsible investment

Our members are saving for their future, so we need to think carefully about how to protect and grow their money for many years to come.

One way we do this is by considering how the companies and markets we invest in treat people and the planet. Well-run organisations with sound environmental and social practices have a better chance of long-term success and profitability. By encouraging sustainable practices, we hope to boost members’ pots while improving the environment and society we all live and retire in.

That’s why responsible investment is at the heart of everything we do and why it’s one of our core investment beliefs.

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Responsible investment report

We’re committed to keeping our members, their employers and our stakeholders informed about our responsible investment activities. We want to share news about the impact we’re having across our members’ investments and broader investment industry.

As long-term investors, incorporating environmental, social and governance (ESG) factors is integral to the investment management process.

What does ESG mean to Nest?

We believe that sustainable practices and a responsible approach to environmental, social and governance (ESG) issues can boost long-term financial return. ESG issues include:

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Climate impact and greenhouse gas emissions, energy efficiency, air and water pollution and water scarcity.

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Human rights, local community impact and employment, child labour, working conditions and anticorruption.

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Diversity, executive compensation, management and board structure and other shareholder rights.

Take a look at our top ESG priorities and how we're pushing for change on a range of issues.

How Nest invests responsibly

There are potentially thousands of ESG investment risks or opportunities we may want to act on. Our size and focus on keeping costs down means we have to prioritise.

We make choices on which areas to focus on and are pragmatic on the measures we can take to support or challenge industry or company practice. If you'd like to read about this in more detail, download Nest's objectives and principles for investing responsibly.

There are four key ways Nest works to invest responsibly:

We own millions of shares in companies on behalf of our members. So it’s our responsibility to help make these companies sustainable and profitable in the long term. One way we do this is by exercising our voting rights.

Most shares give their owners a right to vote on some company decisions, including things such as 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 exercise these voting rights with regards to the shares Nest owns on behalf of our members. They vote in line with their respective voting policies, but we also have a voting and engagement policy of our own.

This sets out Nest’s viewpoint on important areas and tells our fund managers how we expect companies to consider key issues.

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.

We also report the votes our fund managers make every quarter. 

You can see how we voted here.

Working together with fund managers, key stakeholders, partners and organisations allows us to be more effective when acting on issues that matter to our members. It’s important that when we’re choosing fund managers we let them know what we expect in terms of managing ESG risks and opportunities.

This includes how they assess ESG factors and build that assessment into their investment process and their voting and engagement activities.

We expect our fund managers to demonstrate how managing risks and harnessing opportunities can improve the long-term performance of our investments.

We also award focused ESG mandates. These remove high-risk investments common in a certain asset class. For example, our emerging market equities fund doesn’t invest in companies with the largest ESG risks.

To achieve positive change across our investments, and the markets and regulatory environments in which we operate, we also unite with other organisations. This allows us to exert stronger influence and speak with one voice.

Find out who else we work with.

Nest has developed a risk management model to identify where companies we invest in have poor ESG performance and help them improve. The model scores companies on their ESG 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.
  • How companies interact with others - we’re addressing this through a focus on conduct, culture, 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.

Read more about our current areas of focus here.

As we continue to grow, and our investment function develops, we’re looking at more ways to incorporate ESG risk factors into our asset allocation decisions. The first step we’ve taken is to add a climate aware global equity fund to our portfolio as one of the core building blocks that make up our default strategy. 

We’ve also ensured that ESG was our top priority when we designed our segregated commodities fund, which resulted in several commodities being excluded from the fund’s universe. Energy providers with high climate risk exposure are excluded, as are companies focused on thermal coal, palm oil, uranium, and tobacco.