Can a pension help to fight climate change?
Smart Pension informed us that by making our pension green our impact is up to 21 more powerful than giving up flying, going veggie and switching energy provider!
A lot of people don’t know where their pension contributions go when they pay them each month. Some think their money sits in their pension provider’s bank account, waiting for it to be withdrawn at retirement. However, it’s actually invested in companies and funds which aim to earn more money than if the money was sitting in a bank account. As people are becoming more aware of how their savings products are being invested, many are demanding change.
What change are employees demanding?
It’s no secret that people are trying to do as much as they can to be more sustainable and ethical in their day-to-day lives – this also applies to investments. Choosing sustainable investments that help to reduce the impact of climate change, improve diversity and inclusion, and eliminate modern slavery is at the front of people’s minds.
There is still a great deal of education and innovation left to do for sustainable investing particularly in the pension industry – but there are some providers that are dedicated to paving the way.
What does sustainable investing mean?
Sustainable investing means that the aim is to generate financial returns on pension savings so that members can have a more comfortable retirement, and do so in a way that will positively impact society and our planet.
The industry term for this is ESG investing, as we know well at E.S.G. Solutions! This means that when investing, they take into consideration factors ranging from the Environmental impact with the aim to protect the planet, Social impact – looking at issues affecting the fair treatment of people – and Governance, which considers the way companies are run.
Some providers give members little control over how their savings are invested, but some will give members the option to choose which funds they invest in. As the majority of members will remain in the default fund option, our Pension Scheme’s approach is to make the default option a sustainable one by investing in line with the trustee’s responsible investment policy. Additionally, 71% of Smart Pension’s default investment strategy is invested with a specific sustainability focus. The investment strategy invests more in companies with strong sustainability credentials, for example, strong gender equality or emission reduction goals, and less in companies that are not as sustainably strong. These funds are also invested under a distinct climate pledge and have temperature reduction targets included supporting the Paris Agreement. They’re always looking at how to invest even more into sustainable funds that benefit society and the environment, and expect the amount in funds with a specific sustainability focus to increase over time.