Why switching to a sustainable pension is the best thing you can do to tackle climate change
From ditching the car to recycling your waste, you probably take a range of steps to help protect the environment and our planet. As the world slowly moves towards sustainable, green energy, perhaps you want to do even more to help fight climate change?
You might think you’re doing everything you can to go green, but did you know that you can help the environment with your pension? By investing your pension into a sustainable, or ethical fund, you could significantly reduce your impact on the environment.
The Financial Times reports that a pension worth £100,000 invested in a sustainable fund could be the equivalent of taking five or six cars off the road a year.
Ethical pensions have recently risen in popularity, alongside many other funds with a focus on ESG principles. ESG stands for “environmental, social, and governance”, which cover some of the factors sustainable portfolios may consider, alongside financial factors, when making investment decisions. And investing through ESG funds doesn’t mean your investments will yield lower returns either.
Read on to find out more about sustainable pensions.
Switching to a green pension could be 57 times better for the environment than going vegan
With the power to tackle climate change by simply switching your pension, there’s no need to drastically overhaul your lifestyle.
As Pensions Age report, your pension pot alone could do more for the environment than 57 people switching to a vegan diet. In fact, a sustainable pension could be 21 times more effective than giving up flying, becoming vegetarian, and switching to a renewable energy provider combined.
They even claim that a sustainable pension could be 20 times better for the environment than switching to an electric car, which is already one of the other most effective methods of tackling climate change.
Euronews reports that transitioning an average-size pension pot (around £30,000) to a sustainable pension could reduce as much as 19 tonnes of carbon emissions a year.
If you have a pension pot of £100,000, you could be cutting as much as 64 tonnes of carbon emission each year. That is the equivalent of nine years’ worth of the average citizen’s carbon footprint.
A sustainable pension is a way to fund ideas you believe in
Which? states that there is an estimated £3 trillion in UK pensions that are used to fund everything from wind farms to essential government services. However, only 22% of pension holders know the types of company that their pension is invested in.
A sustainable pension avoids putting your investments into certain companies, depending on the policies of the specific fund you choose. For example, they may not invest in the assets of oil companies and instead invest in electric motors.
If you don’t like the thought of your money going towards tobacco producers, weapons manufacturers, or high-emission companies, a sustainable pension may be right for you.
From climate change, to education, and gender equality, there are plenty of options for your investment. After all, the main goal of an ESG pension is to represent the views of those invested in it.
A significant number of pension providers have announced their plans to make their default pension services have net-zero carbon emissions by 2050. For some providers, this is the goal with their entire portfolio.
Investing in a sustainable pension helps both your future, and the planet’s
One concern is that there is too much focus on sustainability instead of profitability. With more than 200 pension funds already being labelled as “sustainable”, do they really perform as well as those without such a strict focus?
The data suggests that yes, they do. Which? reported the findings of a Morningstar analysis, which found that three-quarters of ESG funds performed above average when compared with similar, standard funds.
They may also provide greater longevity and security, as 77% of ESG funds available from 2009 were still going in 2019. This is compared to just 46% of non-ESG funds.
The pressure of well-performing ESG funds is also encouraging firms to improve their pension policies. The more sustainable pensions that are made available, the more widespread the positive impact.
Sustainable pensions are a step forward
It is no doubt that sustainable pensions are a step forward. Switching to a sustainable pension is a great way to help support ideals that you believe in while also supporting yourself in later life.
A sustainable pension fund invests in the ideas you believe in. And, with the returns often just as positive as traditional pension funds, sustainable funds provide a beneficial alternative for pension contributors.
Are you interested in learning more about sustainable investments? We’re here to help you understand how ESG factors can be incorporated into your portfolio.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.
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