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

The ‘S’ pillar of ESG is becoming more important to pension fund managers
New report surveying pension funds from around the world sheds light on how pension funds are approaching the ‘S’ pillar

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 percent of pension funds surveyed intend to increase their allocations to ‘S’ pillar passive funds over the next three years, while 67% 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. The final report, Passive Investing 2021: Rise of the social pillar of ESG, is launched today.

Other findings include:

Covid-19 was cited by 59% of respondents as a ‘key driver’ of their heightened interest in the ‘S’ pillar because of its growing materiality
Almost a quarter, 22%, of respondents reported that their ‘S’ pillar passive funds outperformed wider markets in the March 2020 crash
Over a third of respondents, 36%, 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,” said Simon Klein, DWS Global Head of Passive Sales.

Professor Amin Rajan, CREATE-Research Chief Executive, commented: “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.”

The full report can be accessed here.

DWS Group

DWS Group (DWS) is one of the world's leading asset managers with EUR 820bn of assets under management (as of 31 March 2021). Building on more than 60 years of experience and a reputation for excellence in Germany and across Europe, DWS has come to be recognized by clients globally as a trusted source for integrated investment solutions, stability and innovation across a full spectrum of investment disciplines.

We offer individuals and institutions access to our strong investment capabilities across all major asset classes and solutions aligned to growth trends. Our diverse expertise in Active, Passive and Alternatives asset management – as well as our deep environmental, social and governance focus – complement each other when creating targeted solutions for our clients. Our expertise and on-the-ground-knowledge of our economists, research analysts and investment professionals are brought together in one consistent global CIO View, which guides our investment approach strategically.

DWS wants to innovate and shape the future of investing: with approximately 3,500 employees in offices all over the world, we are local while being one global team. We are investors – entrusted to build the best foundation for our clients’ future.

Key risks

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Risk Considerations