Pensions are important. They help you and your family have a secure financial future and they also impact our society and planet. 

There’s about £2.7 trillion invested in UK pensions. It is our money – managed on our behalf through our pensions – that is being invested in a range of companies. Some of those companies are engaged in deforestation, damaging the environment, and threatening lives and livelihoods across the planet.  

In the short term, where we put our money can contradict our values, but in the long term it’s undermining the very futures we’re meant to be saving for.  But it doesn’t have to be this way. Our pension money is also doing brilliant things – building wind farms, curing disease, making homes and driving innovation.  With a responsible pension, we can make sure that more of our investments do this.

A responsible pension can help us align our investments with our values. It can exclude companies based on environmental performance, moral or ethical views, or religious beliefs. For example, sustainable funds often exclude investments in tobacco, arms, pornography or gambling companies. 

Certain sustainable funds go further and focus investment in companies demonstrating positive environmental and social change. Examples of environmental, social and governance (ESG) factors are numerous and change over time. Breaking down the acronym: environmental issues might include pollution, water use, and climate change; social factors may encompass conduct and culture, diversity and human rights; and governance includes business purpose, executive remuneration, and board structures.

A responsible pension can also help you build the world you want to live in.  Research by Make your Money Matter – undertaken in partnership with SYSTEMIQ and Global Canopy – shows the full scale of ties between our pensions and global deforestation.

The research shows that from timber to tobacco, mining to manufacturing, our pensions fund businesses responsible for chopping down 10 million hectares of forests each year. For an average pension holder, that means two pounds in every ten of your money is linked to environmental devastation around the world.

Moving your pension could be the biggest individual change you could make to support the environment. Making your pension green is 21x more powerful than giving up flying, giving up meat and switching your energy provider. 

So, we know switching your pensions to sustainable funds is better for the planet, but what impact does it have on your own financial future? 

There have been a series of academic studies since 2000, that all point towards statistically equal performance between sustainable and traditional funds. The academic findings that the returns of sustainable funds are inline with traditional ones is supported by recent research by Morgan Stanley that shows there is no financial tradeoff in the returns of sustainable funds and traditional funds. Furthermore, research by Morningstar shows how sustainable funds have, on average, matched or outperformed non-sustainable investments over the past decade.The happy news is that investing to support the planet and society doesn’t mean sacrificing your own financial security.

References

• https://makemymoneymatter.co.uk/wp-content/uploads/2021/07/Summary-of-21x-research.pdf

• https://www.morganstanley.com/ideas/sustainable-investing-competitive-advantages

• https://www.morningstar.co.uk/uk/news/203214/do-sustainable-funds-beat-their-rivals.aspx