Thanks to recent high-profile protests by pressure groups, the topic of ethical pension investments has been thrust firmly into the public consciousness.

One of the issues that appears to be central to the debate is that those unfamiliar with how occupational pension funds in the UK work seem to have only just become aware that members do not have a huge say in how these pension schemes are run. Instead, trustees are appointed to manage the scheme and that role includes selecting appropriate investments based on advice received from qualified advisers.

At a time where company CEOs are frequently demonised by the media for failing to adequately protect their employees’ pensions, would any employer really want to see their scheme’s investment decisions made by the membership at large?

The government has taken steps to recognise that members do not necessarily want their pension funds to be invested in businesses that they don’t agree with. Indeed in recent years it has stepped up its statutory disclosure requirements for pension scheme trustees, obliging them to report to their members on the extent to which their investment strategy takes into account “environmental, social and governance” (ESG) considerations.

As a result ESG has become the pensions industry’s new favourite acronym.

Of course, there is no requirement on schemes to invest on an ESG basis generally. Is the hope that trustees will adjust their investment strategy to avoid difficult questions from disgruntled members, encouraged by employers seeking to avoid negative PR?

But here’s the twist. Pension scheme trustees aren’t encouraged to take into account ESG considerations in their investments because it’s the right thing to do. Indeed, the government has not relaxed the paramount legal duty imposed on pension trustees to act in members’ best financial interests. But the rationale presumably is that taking into account ESG factors when investing could be acting in members’ best financial interests (because such investments could provide better financial outcomes in the long term).

This is a seemingly neat solution, at least from the government’s perspective. Should trustees focus on ESG when it comes to investing because that will necessarily create the best financial result for members? If they do, and the pension scheme’s investments fail, it’s the trustees’ fault and not the government’s – they simply chose the wrong ethical investments. If the pension scheme continues to invest as it did before, then it was the trustees’ decision to ignore ESG and the government can’t be blamed for that either.

However, it doesn’t really stand up to scrutiny.

Firstly, if investments generally perform better when ESG is taken into account then why introduce the new reporting requirements at all? Surely everyone will have already moved to ESG-friendly investments as these are in members’ best financial interests?

Secondly, if the only reason why trustees should focus on ethical investments is to protect the funding position of their scheme, then a similar argument could be made for them to invest in tobacco and alcohol companies – by reducing life expectancy this will also protect, and possibly enhance, the funding position of the scheme. Investing in alcohol and tobacco products is definitely not ESG.

Don’t get me wrong, I’m all for ethical investment that looks at the long-term sustainability of the planet. I just believe that we need to be honest about what we’re doing and make rule changes to accommodate this, accepting that such investments are not always the most profitable and giving trustees the necessary leeway to invest in them regardless.

However, if we do, we must also acknowledge that not every ethical investment will succeed, and some schemes may see increased deficits as a result. Perhaps this is a price that members will be willing to pay for the sake of future generations.