Driving Change By Investing Your Pension Sustainably

In its most recent Financial Lives survey, the Financial Conduct Authority (FCA) found that 80% of respondents wanted their money to ‘do some good’ while also providing a financial return. However, the reality is that only around one in eight UK investors are currently investing sustainably, according to recent research.

With the UK committed to decarbonising all sectors of the UK economy to meet our net zero target by 2050, this obviously needs to change. Money has a carbon footprint, just like our lifestyles, and there is a very powerful vehicle that the majority of us have at our disposal to drive sustainability which is often overlooked: our pensions.

Investing in the future.

Although the average person may not think of themselves as an investor, if they have a pension they are investing their money. In fact, the Government says that occupational pension schemes constitute “the largest single group of institutional investors in the UK, with significant influence over the flow of investments in the economy.” UK occupational schemes alone hold around £2tn in assets, so they are integral to steering the direction of both UK and global finance.

Pensions sit neatly alongside sustainability because they are all about investing today to help shape the future you want. However, only 22% of pension holders say they know the types of companies their pension is invested in, according to the Pensions and Lifetime Savings Association. As people increasingly focus on the importance of looking after the planet however, it follows that they should also want their long-term investments, like pensions, to reflect their personal values.

How can I green my pension?

Making your pension more sustainable is 21 times more powerful than giving up flying, becoming vegetarian and switching energy provider, according to Make My Money Matter, a new people-driven campaign co-founded by writer and director, Richard Curtis. So, what steps can we take to explore this?

Workplace pensions

Many people have a workplace pension scheme, organised by their employer, so asking them about your pension’s green credentials is a good place to start. If your company has wider corporate sustainability values, you can also ask how the pension scheme ties into these.

The majority of people are likely to be enrolled in their workplace scheme’s default fund but many providers will also have existing sustainable investment funds that can be considered.

There is also a move towards default funds themselves becoming sustainable, with Standard Life for example announcing in early 2022 that it would move £15bn of assets and 1.5m pension customers to a sustainable default strategy. A number of other big-name providers, including Aegon, Aviva and Legal & General, have also committed to their default funds transitioning to net-zero carbon emissions by 2050.

It’s worth noting that there is no one definition of a sustainable pension however, so it is up to each individual to look at the criteria and work out whether they align with their own values.

Legacy pensions

Don’t forget to also consider any legacy pension schemes that you might have accumulated throughout your working life. The government provides a useful online pension tracing service where you just need your previous employer’s name. One option could be to consolidate these into one, more sustainable, plan, although you need to be sure that you also review other considerations such as costs and any exit penalties, your lifetime allowance, and potential benefits, such as guaranteed annuity rates

Personal pensions and SIPPs

With a personal pension or self-invested personal pension (SIPP), investors have increased control over their pension investment but sustainability may not have been something that you considered at the outset. Your pension provider will be able to provide you with details about your scheme as well as other options within their range. However, almost all large insurers and asset managers now offer sustainable investment options.

For SIPP holders, research can be more challenging as you can invest in a wide range of assets and there is little standardisation in sustainability credentials. If you work with a financial planner, then they will be able to help you assess your portfolio and give advice on funds or assets you may wish to change or add.

Looking ahead, new rules around sustainable investments, entitled the Sustainability Disclosure Requirements are set to be finalised later this year, which will introduce clearer naming, labelling and marketing of products. This will help to protect investors against ‘greenwashing’ - essentially buying something that isn’t quite as sustainable as it says on the tin.

No longer ‘money versus morals’

Of course, the overriding aim for the majority of pension savers is to provide their required pension income but it’s no longer a case of either money or morals. Research by Morningstar, published in July 2020, found that the majority of sustainable funds surviving over 10 years outperformed their traditional surviving peers, indicating that investors taking the sustainable route were less likely to miss out on returns than if they had invested in traditional funds.
With sustainable investing, you’re investing not only for the personal financial goal you want to achieve but also for the type of world that you want to live in. If you want your money to be a force for good, then engaging with your pension or pensions in terms of their sustainability credentials is one of the most powerful steps you can take.


Richard Gillham, CFA, is a financial planner at Progeny