Pension funds in the United Kingdom are worth an incredible three trillion pounds. Currently much of that money is placed into default funds, investing in companies which produce fossil fuel or drive deforestation.
According to campaign group, Make My Money Matter, UK pension schemes currently invest £88 billion in fossil fuel companies. Many people who have worked hard to ensure they live more sustainably are unaware of this and would be shocked to find their money is being used to fund such organisations.
The group also states that UK pensions have the potential to invest one trillion pounds in climate solutions, such as renewable energy, by 2035 - half the money required to enable the UK to reach net zero emissions by 2050.
It’s advice that chimes with that given by adventurer and best-selling author, Simon Reeve, who told audience members at this year’s talent acquisition networking and learning festival, RecFest, that the best way businesses can safeguard the environment is by greening their money.
Simon was talking to Reed Talent Solutions’ Managing Director, Lee Gudgeon, as our special guest at the event. The BBC presenter and travel documentary maker said companies can make a huge difference through the “power of finance”.
“Greening the average British pension is at least 20 times more powerful at reducing your individual carbon footprint than going vegetarian and stopping flying every day for the rest of your life,” he said.
The business benefits of green pensions
Taking stock of how pensions are invested is an effective first step for companies to not only lower their carbon output, but to create a more sustainable future for the UK.
Business leaders should consider investments as an extension of their own carbon output. Currently money is invested without many organisations asking what impact that will have on the world.
While companies are investing in greener buildings, recycling schemes or paperless offices, they are simultaneously pouring billions of pounds of pension investments into backing the fossil fuel industry.
Another reason why organisations should investigate their pension schemes is that workers care about the sustainability of their pensions. UK government research conducted earlier this year revealed 80% of people were very or fairly concerned about climate change, while a study from Deloitte last year found more than 40% of Gen Z and Millennials were willing to change jobs over climate concerns.
How sustainable a pension scheme is, could therefore become a major factor in both the recruitment and retention of new talent.
Employers looking to improve their pension offering have the power to significantly reduce the emissions associated with their investments, align their sustainability policies with pension investment practice, and raise awareness of the issue while sending a message to the pension industry.
By integrating pensions into their sustainability strategies, organisations can engage with an increasingly climate-conscious employee base and use their influence to drive change.
What can individuals do?
Anyone who has a workplace pension should be able to see where their money is invested.
It is important to remember you can ask your provider to switch your investment into other funds. Some providers will have ethical funds, or an environmental, social and governance (ESG) choice.
While there may be a concern that pulling out of a workplace pension that doesn’t meet your values will mean losing those vital employer contributions, people have the ability to put pressure on providers by encouraging them to change the way they work and invest.
If you are concerned about the investment funds on offer, it is worth writing to your provider asking them to offer green pension funds. Make My Money Matter has stated that it has seen £1.3 trillion in UK pension funds committed to net zero due to pressure being exerted on providers.
When deciding where to invest a pension pot, employees can either select organisations which have strong environmental credentials or seek to have an influence on those businesses which don’t - with the aim of pushing them to do better in the future.
Some pension providers will actively engage on the behalf of their clients to push firms who, for example, produce fossil fuel to be more environmentally friendly.
Active stakeholders can directly challenge the organisations they invest in, driving change based on the threat of the withdrawal of investment. If people want their money to have a voice, it makes sense to invest it somewhere where that voice can be heard.
The alternative is placing your money where it can do something positive, such as into renewable energy, healthcare or social bonds.
Individuals should also take the time to investigate any old pensions they have from previous jobs. Often these will have been placed into default funds, chosen by employers, and generally include organisations which produce or deal in fossil fuels.
One way to green your pension easily is by consolidating these old pensions into a new fossil-free plan.
Before doing so, it is important to make sure you aren’t losing out personally on any guaranteed annuity rates or incurring exit penalties, but for those people who have worked hard to green their everyday lives this is a surefire way of making sure you aren’t investing in the very firms those habits oppose.
Three trillion reasons to make a change
In a world where both individuals and organisations are looking to burnish their green credentials and introduce ways of working and living that put the environment in a central position, greening pension pots is one way to make a huge difference.
The redirection of where money is invested can dramatically reduce your personal or business carbon footprint, will allow you to align your pension pot with your values, and has the power to boost renewable energy and environmentally friendly organisations.
Three trillion pounds is a lot of money – deciding where it goes deserves some proper thought.
Your organisation’s social values, including the power of your pension pot, need to be recognisable and relevant to current and future talent. Find out how to we can help you create an employee value proposition that resonates here.
Please note that the information contained in this article is not intended as, and shall not be understood or construed as, financial advice.
