Providing for your own future need not mean you have to compromise on your principles. In fact, greening your pension is one of the most powerful actions you can take for the future of the planet (alongside your own).
According to Make My Money Matter (MMMM), greening your pension is 21x more effective at reducing your carbon footprint than giving up flying, going veggie and switching energy provider combined. Research by MMMM has also found your pension is likely to be contributing to deforestation, with £2 out of every £10 you pay in helping to fund it.
Saving into a pension is a wise decision, and one you should prioritise at an early age to ensure that you take full advantage of tax breaks and compound interest (this is where you earn interest on your interest, which over time makes a huge difference to your pot).
You can build your own pension portfolio using any number and combination of sustainable funds, trusts and shares through a SIPP (self-invested personal pension) – see the latest Good Investment Review for more – or through a normal private pension.
Here are some Good options to consider.
NEST, the National Employment Savings Trust, is a not-for-profit organisation set up by the Government as part of its commitment towards auto-enrolment. Its pension funds are only available to people who are either self-employed, or who have been enrolled by their employer.
The ethical fund, which NEST says is slightly higher risk than its standard fund, invests in companies with positive records on human rights, fair labour practices and fair trade policies – especially with developing countries and the environment.
NEST is fully transparent with its investors about where their money goes and has a comprehensive exclusions policy. It avoids investing in tobacco, arms and corrupt states including those with a bad human rights record, as well as companies that damage the environment. NEST announced in 2020 that it will decarbonise all of its investments, making it an industry leader in this area. It also scores comparatively well for its climate action plan in Make My Money Matter’s climate rankings table.
On deforestation, NEST says: “We’ve joined Global Canopy’s Deforestation-free pension funds guidance working group to help develop guidance on and help us work towards reducing deforestation exposure across our investments. We’ve already started work to identify deforestation risks across our portfolio and are currently undertaking a market warming exercise to consider whether we will invest directly into forestry (natural capital).”
On food sustainability, it says: “We’ve joined the Farm Animal Investment Risk and Return (FAIRR) initiative, a network of investors managing over $69 trillion (£54.8 trillion), to push companies like Tesco and Sainsbury’s away from intensive livestock production and unsustainable business practices.”
Research by Ethical Consumer magazine has found that NEST gives excessive remuneration to its top level staff, with its highest paid director paid over £337,000 in total compensation in the tax year 2021/22.
However, the NEST ethical fund still tops the magazine’s table for ethical pensions.
What’s the cost?
NEST’s 0.3 per cent annual management charge (AMC) is one of the lowest on the market, though there is a 1.8 per cent charge for contributions (it’s free to transfer existing pots in or out).
So if you paid £1,000 into your pot over a year, the contribution charge would be £18. If your pot was then worth £10,000, you’d pay an AMC of £30.
Launched in January 2023, PensionBee’s Impact Plan invests in companies tackling some of the world’s greatest social and environmental problems such as achieving better healthcare, housing, education and cleaner energy. Companies in the Impact Plan, which PensionBee says is “higher risk” are working to support underserved communities and tackle unaddressed challenges, to help improve lives and create a better planet.
While the Fossil Fuel-Free Plan (below) invests passively, the Impact Plan is actively managed with real people consciously picking the right stocks. PensionBee – a Good With Money ‘Good Egg company’ – says the fund is “Helping to make a real-world impact through social and environmental action that can be measured.”
The fund’s top holdings currently include Bank Rakyat Indonesia, educational skill firm RELX PLC and Taiwan semi-conductor manufacturing. You can see the top 20 holdings, and the UN Sustainable Development Goals they relate to, here.
Investments are picked by fund managers at BlackRock, which doesn’t have the whitest (or greenest) record on sustainability. However, it chooses investments for this fund based on PensionBee’s strict criteria. The fund comprises around 200 to 300 investments, which PensionBee hopes will be sufficient to provide a globally diversified portfolio.
To be included in the fund, more than 50 per cent of a company’s revenue or business activity must be helping to solve a real-world problem (as defined by PensionBee’s impact themes) or advance at least one of the United Nations Sustainable Development Goals (UN SDGs).
What’s the cost?
For the Impact Plan, you’ll pay one annual fee of 0.95 per cent. For anything saved over £100,000, this fee is halved.
The Fossil Fuel Free Plan, created and managed by Legal & General, is one of the UK’s first mainstream private pension plans to completely exclude companies with proven or probable reserves in oil, gas or coal. It also excludes tobacco companies, manufacturers of controversial weapons, nuclear weapons and persistent violators of the UN Global Compact. It focusses instead on businesses that consistently show positive action on human rights, labour, the environment and anti-corruption.
Following a survey in 2021 of customers invested in the Fossil Fuel Free Plan, PensionBee extended its exclusions to companies that provide services to the fossil fuel sector. Last year a PensionBee survey found 21 per cent of savers now want oil completely excluded from their pension plan.
Alongside avoiding fossil fuels, this plan invests more of your money in companies that are aligned with the Paris climate change agreement (ie. those that are better prepared for the transition to a low-carbon economy).
It does this by passively tracking the climate-aligned FTSE All-World TPI Transition ex Fossil Fuel ex Tobacco ex Controversies index, which was created specifically for this pension plan. In simple language, it means your investments will passively follow the market performance of a group of fossil fuel and tobacco-free companies within the index, instead of your money manager actively buying and selling stocks in these companies.
PensionBee says pension savers choosing fossil-fuel free pension plans were likely to have seen higher returns during 2023 than those in mainstream default plans.
Find out more about the Fossil Fuel Free Plan:
What’s the cost?
You’ll pay one annual fee of 0.75 per cent.
The Penfold Sustainable Plan uses a mix of ESG (environmental, social and governance) screening and enhancing as well as a focus on socially responsible investing. It invests a larger percentage in companies with the highest ESG rating compared to their peers and removes any investments that underperform.
The plan is based on BlackRock’s MyMap 5 ESG fund, which aims to reduce its portfolio’s carbon emissions intensity by 30 per cent compared to an equivalent non-ESG fund.
The fund must invest at least 80 per cent of its assets in sustainable strategies and at least 80 per cent of its government bonds into sovereigns issuers with ESG sovereigns who have improved their ESG credentials.
While Penfold does apply screening to its Sustainable Plan, research by Ethical Consumer found it had no detailed company-wide exclusions of destructive industries and practices. It also didn’t make clear how (or if) it was addressing issues such as water usage, waste, pollution, biodiversity, and other environment issues within its own operations or portfolio companies.
What’s the cost?
You’ll pay one annual fee of 0.75 per cent on savings under £100,000, and 0.4 per cent on anything over £100,000.
Pensions giant Aviva has a huge number of ethical funds that can go into a personal pension. Top performers with strong sustainable investment policies include the Liontrust Sustainable Future range, all of which are available through Aviva.
Others include Royal London Ethical Bond, Rathbone Ethical Bond, Baillie Gifford Responsible Global Equity funds, and the Pictet Multi-Asset Portfolio. For more on these funds, see Good With Money’s latest Good Investment Review. Aviva topped the table in Make My Money Matter’s climate rankings.
What’s the cost?
You’ll pay an annual fee of up to 0.40 per cent (depending on the size of your pot) plus fund charges.
Royal London runs both a workplace and a personal pension plan. The former will be decided by your company while the latter is available to buy through a financial adviser. The firm has a number of ethical and sustainable funds, including its ethical bond product, as well as Royal London Sustainable World and UK Ethical Equity.
What’s the cost?
See the full list of fees here.
The Henderson Global Sustainable Equity fund, which has a five star sustainability rating with data providers Morningstar, is available through the Zurich pension scheme. After the Liontrust Sustainable Future range available through Aviva, it is one of the better ethical pension funds.
Unlike most, the fund does not invest in oil and gas with the manager seeking to actively invest in global companies whose products and services are considered as contributing to positive environmental or social change. It also regularly publishes all of its holdings as well as an annual Impact Report.
Zurich says it aims to be one of the most responsible and impactful businesses in the world. This includes cutting down on paper and single-use plastics, using 100 per cent renewable energy in its offices, and planting trees on behalf of its policyholders.
What’s the cost?
You’ll pay an annual fee of 0.75 per cent.
Aegon offers a range of ethical pension funds, including the Ethical Equity Fund, which all screen out companies involved in activities that harm the environment or society. These include animal testing, alcohol, the extraction of fossil fuels, nuclear power and oppressive regimes.
They also invest in sustainable themes such as education, good health and well-being, environment, climate change and renewable energy, social housing and infrastructure, and software delivering solutions.
Aegon conducts a survey on ethical and sustainable investing every two years that asks investors and advisers for feedback on its approach, and makes tweaks when necessary. In its most recent survey, Aegon found that 71 per cent of respondents are already investing ethically.
However, Ethical Consumer found Aegon’s policy left it able to invest in fossil fuels. It says: “Its exclusions policy only restricted companies that generated more than 25 per cent of their revenues from the exploration, mining, and refining of thermal coal. While Aegon was gradually lowering these thresholds, Ethical Consumer considered any new investment in thermal coal to be highly damaging.”
What’s the cost?
You’ll pay an annual management charge of up to 0.6 per cent depending on the size of your pot.
CIRCA5000, an app-based investment platform and certified B Corp company, offers a Self-Invested Personal Pension (SIPP) which gives you the flexibility to choose what your pension pot is invested in.
All of CIRCA5000’s positive impact portfolios invest in globally-listed companies that aim to make a profit while also making a positive difference to the planet and society.
You can choose to invest in one of three separate themes – climate change, equality and disruptive technology – or a combination of all three, at a risk level you feel comfortable with. You also have the option to make a ‘custom portfolio’ where you can take one or more of the themes and tweak them to create a portfolio that matches your specific values.
What’s the cost?
You’ll pay an annual fee of 0.45 per cent as well as a £1 monthly subscription fee.
If you’d like help with building an ethical personal pension, look for a financial adviser that is skilled in this area. Our Good Egg companies EQ Investors, Path Financial and Bluesphere Wealth are all great options.
Risk warning: With pensions, as with all investments, your capital is at risk. The value of what you put in may go down as well as up.
If you’d like to find out more about the above providers, a Which? membership gives you access to in-depth, expert reviews, ‘Best Buys’ and ‘Don’t Buys.’
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