Pensions - less speculation, more sustainable investing

There is a gulf between people’s concern about climate change, and their level of understanding of how their pensions are invested. People are generally unaware of the extent to which their pension pots are contributing to environmental damage.

Two thirds of all employees and almost three-quarters of young people say they would engage more with their pension it they knew it was making a positive impact on climate change. The reality is that pension pots represent a huge ‘blind spot’ for people when it comes to their own, personal impact on the environment.

Each year, the average UK pension member unknowingly finances around 23 tonnes of carbon emissions through the businesses in which their pension invests. This is the equivalent of running nine family cars each year, or burning 1,100 coal fires annually. To offset this, you would need to recycle for 19 years, or plant 30 acres of new forest.

Taken together, across the 220 items that represent the ONS’s view on household consumption, and extrapolated for one year, the UK average individual annual carbon footprint is equal to 7.02 Tonnes.

When the ‘carbon savings’ intensity is applied to the average individual pension wealth (c. £30,000) the total carbon savings of switching from the global equity index, to an equity-focused sustainable fund equals 19 Tonnes. Finally, the study shows the carbon savings benefit of switching pension funds compared to more familiar behavioural adaptations. For example, moving the national average pension wealth to the sustainable fund used in the calculation is 21 times more effective (respectively) than the combined annual carbon savings of switching to a renewable electricity provider, substituting all air travel with rail travel and adopting a vegetarian diet.

These stark numbers highlight the tension between how our money is being invested and our values as a society. Most of us are increasingly concerned about climate and biodiversity, and recognise the gravity of the crisis we face.

However, recent well documented research confirm that the vast majority of investors in pension plans are almost entirely unaware of the harm that their pension may be causing to our planet - despite the steps that we are all taking to become live more sustainably in our day to day lives.

Investing sustainably is by far the single most important action that any individual investor in a SIPP, ISA or company pension can make in 2021.

The case for devoting less time on speculative investment fads, and a lot more time spent on seeking out leaders in the field of sustainable and responsible investing, has now become overwhelming.