The ‘S’ pillar of environmental, social and governance (ESG) is becoming increasingly important for pension funds, however, a dearth of core-social related indices remain, according to a survey conducted by CREATE Research in partnership with DWS.

The survey, which interviewed 142 pension plans, found 66% expect to increase their allocations to ‘S’ pillar passive funds over the next three years despite just 14% currently using core social-related indices.

In the subsequent report, titled Passive Investing 2021: Rise of the social pillar of ESG, CREATE Research said the COVID-19 pandemic acted as something of a watershed moment for the often-underappreciated ‘S’ pillar of environmental, social and governance (ESG) considerations.

As a result, 59% of respondents said the need to tackle the inequalities exposed and exacerbated by the pandemic was a key reason for their allocations to socially conscious investments.

These societal divisions in the West have progressed over the last 40 years amid increased globalisation and digitalisation which have created winners and losers as governments have struggled to re-equip and reskill those who suffered loss of employment and income.

The rift between social groups was merely widened by the pandemic, the research said, with 48% of respondents now recognising the materiality of social issues in business performance and investment outcomes while 58% seek good long-term risk-adjusted returns by allocating to investments that factor in social considerations.

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