The Federation of Small Businesses (FSB) is sounding the alarm for pension funds to put social responsibility first and hold late paying companies they invest in, to account.
The call dovetails with the Government’s year-old task force, which aims to help pension schemes address the risks and seize the opportunities of social – ‘S’ – factors in Environmental, Social and Governance (ESG) investing.
As part of this, the FSB is calling for the National Employment Savings Trust (NEST), which many SMEs and their employees rely upon, to be particularly mindful of the ‘S’ in ESG when investing in large companies.
It says investors have a crucial role to play in prioritising their social responsibilities and making conscientious investment choices – particularly when it comes to companies with a history of late payment to their suppliers.
FSB national chair, Martin McTague, said: “Simply put, the S in ESG should mean more than adhering to social standards – it should equate to a proactive role in fostering sustainable economic development.
“When pension funds invest in companies that pay their small suppliers late and fail to take any action on this, they support a detrimental practice that can disrupt the cash flow and financial stability of smaller businesses in local communities right across the UK.
“By taking a more holistic view of a company seeking investment’s performance, this will put pressure on the management of companies with a poor late payment track record. Investors can help foster a more equitable and sustainable business environment. This should also help protect their investment, as companies that pay their small suppliers promptly have more resilient supply chains.
“Timely payments to suppliers enable SMEs to meet their financial obligations, invest in growth opportunities and nurture long-term business relationships, freeing them to focus on growth and innovation. Pension funds will also make our whole economy more productive and efficient, catching up with global competitors that pay promptly for good work done on time and on budget.
“Pension schemes should look beyond the immediate financial returns from large companies and consider the wider context: more certain cash flows for SMEs will translate into better economic growth which will benefit everyone, and their members in particular.”