Time to make the switch: a green pension can be your most impactful investment
Last week London was hit by a mini-heatwave, with temperatures as high as Spain in October, a month in which Londoners usually start putting on their warm coats. As temperatures rise, concerns about our impact on the environment do too. Hot weather exacerbates our eco-anxiety, according to the World Economic Forum think tank. Our thoughts are increasingly turning to our personal contributions to global warming.
This generation is concerned with global warming and wants to seriously minimise their environmental impacts. Individuals are already making big changes. A study carried out by Coutts of people with assets above £1m shows that over half are reducing single-use plastic in their homes, while a fifth are taking lower-carbon modes of transport and a third have improved their homes’ energy efficiency.
Whilst one of the biggest impacts an individual can make is through their investments, only 21 per cent of respondents said they believed switching to environmentally conscious investment products could make a difference. However, 68 per cent thought they could improve the world through recycling. We know that the impact of a sustainable investment is far greater. Film director Richard Curtis heads a campaign that claims changing your pension to be invested sustainably saves twenty-one times more carbon than giving up flying, becoming vegetarian and switching to renewable energy.
It’s a startling figure, but it does mean that it’s easy to impact significant change. One conversation with a financial adviser could be enough to switch to a more sustainable investment strategy.
However, there are many off-putting myths surrounding sustainable investment. One is that environmentally conscious investments will underperform. Another is that all investments that badge themselves as green are instead “greenwashed”.
The truth is more complex. During the acute phase of the pandemic, in some markets, investments in renewables outperformed. At other times, these investments will perform less well. As for greenwashing, the number of funds labelled as green means that investors must trust their advisers to give the right information when it comes to picking funds that make a difference.
This includes being told whether their pension is invested with a responsible provider. Responsible means different things to different people; investors should be given the information to investigate whether funds are aligned with their values, rather than just avoiding the worst environmental offenders.
Consumers should ask how the green funds have performed against other funds and be given information about their investment provider too. How is it using its influence for good, engaging with companies to invest money to reduce emissions, or ensuring board diversity? What kind of public commitments has the provider made – have they committed to a net zero strategy? Are they a member of climate friendly initiatives, such as Climate Action 100+? How are these networks being used to improve their ESG strategy?
Everyone deserves to have the right information to make a green switch, and this information should be given before a consumer starts a new pension or decides to invest. Yet many in the UK have never had a conversation about the sustainability of their investments.
It’s now relatively easy to switch most types of pensions, so there is no excuse for not giving consumers the opportunity to consider the environmental impacts of their investments.
While switching a personal pension may seem less impactful than recycling or not using a car, it can be a key driver for positive change.
It’s an educational task that everyone in finance should share. Everybody from the newest auto-enrolled pension scheme member to the biggest investor deserves the right to make a difference. It’s our responsibility to offer it.