Europe

Investor Group to Probe Workforce Performance of Large UK Firms

Initiative aims to shed light on metrics of most value to investors and will benchmark employee practices of FTSE 100 companies.

The Pensions and Lifetime Savings Association (PLSA), the Chartered Institute for Personnel and Development (CIPD), the £32 billion UK railways pension fund RPMI Railpen, and independent research and analyst company the High Pay Centre are to examine how well the UK’s largest listed companies are responding to workforce factors.

The research will build on earlier studies conducted by the PLSA, CIPD and High Pay Centre, which found  that investors’ growing interest on material workforce issues had not been translated into consistent corporate reporting.

The group believes the research is timely, given workforce factors which have been brought into focus during the Covid-19 pandemic and the UK Government’s consultation on the effectiveness of occupational pension scheme trustees’ current policies and practices in relation to social factors, which closed today.

The group will explore what key workforce metrics are of most value to investors and examine the annual reports of FTSE 100 companies to assess how well they explain their employment models and practices in relation to company strategy.

Areas including the disclosure of workforce composition, such as gender and ethnicity; stability of the workforce; skills and capabilities; and engagement and well-being will be examined. Within these major themes, metrics including aggregated turnover rate, the proportion of full- and part-time staff, employee share ownership, living wage accreditation and time lost to sickness and injuries, mental health sickness rates, gender and ethnicity pay gaps and age diversity of the workforce will also be reviewed.

The research will be supported by insights from company engagements conducted by the Railpen team, who have since March 2020 been probing portfolio companies on their approach to looking after employees’ physical, mental and financial wellbeing. With a significant proportion of unionised members, Railpen states in its Stewardship Report that it has a “clear mandate” which reinforces its engagement and voting focus on workforce issues in particular.

The group said with £2.2 trillion of assets under management, UK pension scheme investors “wield significant influence in encouraging corporate best practice and success”. They demand high levels of disclosure around employment practices because “companies that look after their workforces tend to outperform their competitors”, it added.

Social factors “not well understood” – minister

Guy Opperman, the UK Minister for Pensions and Financial Inclusion, noted that action on ESG risks by pension fund trustees had tended to focus on climate change recently, expressing concern that social factors were not “well understood”.

“Many pension scheme trustees’ policies in relation to social factors are high level and unilluminating. There is a concern that trustees are ill-equipped to deal with financially material social factors in their investments. How well do they, and those acting on their behalf, understand what is happening in the supply chains? How exposed are they to the risks posed by action on these issues? And what are they doing in response?”

The UK Government consultation sought views on trustees’ approach to social factors and to understand how it can help trustees better able to meet their legal obligations.

Vanessa Hodge, UK ESG Integration Lead at Mercer, said the company was supportive of the consultation. “Social issues came to the fore as the Covid-19 pandemic unfolded with investors prioritising different factors, including modern slavery, workforce health and safety, and diversity, equity and inclusion.”

Often trustee boards that do have an explicit focus on a particular social issue do so because of a specific investment or ethical belief of the trustees or their corporate sponsor, she added. This makes it challenging for asset managers to integrate all their clients’ social investment beliefs into pooled funds.

“Most UK pension schemes will rely on asset managers to integrate their beliefs through investment products and via their asset managers’ stewardship activity. We are increasingly seeing inclusion of social issues in engagement strategies as a differentiator of manager approaches to stewardship,” she said.

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