This article is an extract from our new Good Guide to Net Zero, which explains what net zero actually is, how it affects you, and how you can apply the concept to your own life and finances. In partnership with Triodos Bank, Ecology Building Society, Nest pensions, Ethex and Make My Money Matter.
It feels like the whole world is waking up to the threat climate change poses to our everyday lives.
And it’s about time too.
We’ve known for years the catastrophic damage a rapidly heated world could cause, from flooding to drought and heatwaves. Earlier this year we saw the terrible and deadly flooding across Germany. The Head of the Environment Agency believes Britain will see similar events unless we become more resilient to the violent weather the climate emergency is bringing. That it’s a case of “adapt or die.”
Like I suspect many of you, I’m really concerned about what the world will look like when future generations come to retire.
What changes will make a difference?
So, what can we do? If this is a problem which has been ongoing for years, what changes can we make to our lives to make a difference?
Many of us have already made key lifestyle changes, like eating less meat or changing how we travel, to help reduce our carbon footprint. But have you thought about how your pension is invested?
As a pension scheme, Nest receives around £400 million in new contributions every month which we need to invest on behalf of our members. We put this money into various things, from buying shares to investing directly into real estate. How this money is invested matters. Investing the money responsibly, to achieve sustainable returns, should help our savers build up a great retirement pot.
The pension industry is beginning to recognise that climate change doesn’t only pose a risk to our way of life, it also presents a real investment risk. All the research we’ve done shows well-run companies with sound environmental and social practices have a better chance of long-term success and profitability.
So last year, Nest committed to be a net zero investor by 2050 at the latest, and to halve our carbon emissions by the end of this decade. This keeps us in line with efforts to keep global temperature rises within 1.5C above pre-industrial levels.
This was one of the key targets set by countries through the Paris Agreement on climate change to help avoid the worst effects of it. We’ve made these commitments because we believe it will help our savers achieve a bigger pension pot in the long- term and help create a better world for them to live in and retire into.
We need to act now if we’re to achieve our net zero targets, and we’ve already taken some immediate steps to help reduce the carbon footprint of our investments.
Where we invest matters
Firstly, we invest in a way that reduces the amount we put into companies that are the biggest carbon emitters. Instead, we take this money and increase how much we invest into companies involved in clean technology and renewable energy opportunities. Already more than half of our £20 billion portfolio is invested this way. This has helped redirect more than £1 billion into green industries and has reduced the carbon footprint of our portfolio, equivalent to taking 339,000 cars off the road.
Secondly, we believe some activities are simply incompatible with our net zero target. We’ve therefore begun taking money out of (known in the investment world as divesting) companies involved in extracting certain fossil fuels: thermal coal, oil sands and Arctic drilling.
Banking on renewables and green infrastructure
Thirdly, we’ve partnered with Octopus Renewables, who are trying to build the world’s leading renewables energy business. They’re helping us invest directly into green infrastructure projects like solar and offshore wind farms, across Europe as well as right here in the UK. We want to invest in the energy of the future, not the past, and expect to invest billions of pounds over the coming decades.
Because of how we invest their money, our members are shareholders in some of the largest companies in the world. Over the past few years, we’ve used this position of influence to both privately and publicly challenge businesses like Barclays and Total to adopt net zero targets. Our efforts, coordinated with other like-minded investors, has helped push companies into doing the right thing and taking their climate change responsibilities seriously.
Nest’s net zero ambition is across all our investments, so you don’t need to choose a ‘green option’.
Not only is this the right thing to do, it’s also what our savers want and expect from us. How can we offer them the prospect of a better retirement if we ignore the world they’ll be retiring into?
This approach means we can have an even greater impact by coordinating our £20billion+ investments towards reducing carbon emissions.
We’re delighted to be working with Good With Money again, co-sponsoring the Good Guide to Net Zero. We want more savers to be asking questions about their pension and what their provider is doing to reduce global carbon emissions and create a better, more profitable future for everyone.
I’ll give the final line to Nest’s Chief Investment Officer, Mark Fawcett, who leads Nest’s investment strategy. When we announced our net zero ambition, he insisted Nest must play our part in the efforts against climate change:
“Not only is this the right thing to do, it’s also what our savers want and expect from us. How can we offer them the prospect of a better retirement if we ignore the world they’ll be retiring into?”