You may already be taking steps in your personal life to protect the planet – such as eating less meat, cutting down on flying, and switching to a green energy tariff.
But if you want to turbocharge – not undermine – these efforts, take a look at your pension!
Greening your pension is 21 times more effective at fighting climate change than all of those actions put together, according to campaign group Make My Money Matter.
Its research shows that a shocking £88 billion of UK pensions are invested in fossil fuel companies, working out as an average of £3,000 per pension saver. Meanwhile, for every £10 you put in your pension, £2 is helping to fund deforestation.
To mark Pension Awareness Day, here are our top tips for making your pension more ethical.
1. What does “ethical” mean to you?
The term “ethical” will mean something different to everyone – and it certainly varies widely in the pensions industry. When looking at whether your pension aligns with your values, you should consider what your approach will be.
Do you want to focus on screening out destructive industries, or are you committed to only investing in firms making a positive impact on the planet? In other words, you may be happy to simply avoid fossil fuel firms and other sectors (such as tobacco and arms) that you believe to be unethical, while others may want to invest only in companies that are actively doing good for society and/or the planet.
While some people will want to avoid negatively impactful companies such as oil and gas firms altogether, others might want to keep investing in them so they have a voice in how they are run. Known as ‘stakeholder engagement,’ this means that your asset manager or pension provider will actively push them to become more ethical or sustainable over time. The threat of divestment (no longer investing) can be a powerful thing.
2. Check your workplace pension
Ask your boss or HR department where the company pension is invested – does it align with your values? And does it also align with your employer’s sustainability targets for the business? Make My Money Matter has a useful template for asking these questions.
If you aren’t happy with what you discover, consider which options you have to move into a pension fund more aligned with your ethics. There might be an ethical fund or environmental, social and governance (ESG) fund that is better than the default.
If you are building your own pension portfolio through a Self-Invested Pension (SIPP), take a look at these ethical options. See the latest Good Investment Review for more.
3. Mind the greenwash
Don’t take a pension provider’s word for it that a fund is “ethical,” as this and other terms are open to interpretation.
Check the fund factsheet to view its objectives and holdings (ideally not just the top 10), to ensure it matches your personal principles. If you’re unsure, do extra research – for example, does it feature in lists of highly-rated ethical pension funds?
The industry is currently awaiting new rules from the Financial Conduct Authority aimed at stamping out greenwashing, which should make your choices easier to make. In the meantime, check to see if they have signed up to any industry initiatives such as the UN-backed ‘principles for responsible investment’.
4. Make some noise!
Only when we no longer bury our heads in the sand and make sustainable pensions a real dinner table topic will change come. Talk to your friends, family and colleagues, get them to ask the question of their own personal or workplace pensions: ‘Is it green?’
And finally,
As well as checking out the ethical standards of your pension fund, make sure you are happy with the risk profile and fees before you invest. Investing for the good of the planet and society should not mean taking a personal financial hit.
For more help with putting the power of good behind your pension, see our Good Guide to Pensions.
