DWS-sponsored report reveals the rise of ESG’s ‘S’ pillar in pension portfolios

The ‘S’ pillar of environmental, social and corporate governance (ESG) is becoming an increasingly important driver of investment decision-making by pension funds, especially in light of the Covid-19 crisis, a new survey sponsored by DWS has found.

Sixty-six per cent of pension funds surveyed intend to increase their allocations to ‘S’ pillar passive funds over the next three years, while 67 per cent will select their passive manager based on their track record of delivery of their clients’ social agenda.
CREATE-Research, which conducted the analysis, surveyed 142 pension plans in 17 jurisdictions with collective assets under management of EUR 2.1 trillion. Forty of the pension plans subsequently took part in post-survey interviews to add qualitative depth to the findings. 

According to the report – Passive Investing 2021: Rise of the social pillar of ESG – Covid-19 was cited by 59 per cent of respondents as a ‘key driver’ of their heightened interest in the ‘S’ pillar because of its growing materiality.

Almost a quarter, 22 per cent, of respondents reported that their ‘S’ pillar passive funds outperformed wider markets in the March 2020 crash.

Over a third of respondents, 36 per cent, seek to manage difficult-to-model fat-tail risks by investing in the ‘S’ pillar.
This is the fourth year that DWS has sponsored the research, which also broadly explores the uptake by pension funds of passive investing. Previous reports have focused on stewardship and the environment.
“This important research shows not only that pension funds continue to embrace passive investments, but also the growing dominance of ESG and the importance of the ‘S’ pillar within that,” says Simon Klein, DWS Global Head of Passive Sales.
Professor Amin Rajan, CREATE-Research Chief Executive, says: “Our 2021 survey shows how Covid-19 has exposed long-concealed failings of today’s market economies, but also how the increasing prominence of the ‘S’ pillar of ESG can play a role in addressing those failings.”