Ethical pensions: How to go green with your investments
Whether it’s because we were all forced into a period of reflection during lockdown, or the fact that climate and socio-political issues are becoming more and more visible with each passing day – we’ve all become more environmentally conscious in recent years.
From cutting down on our meat intake, to thinking twice about how we travel, many of us are trying to make small steps to have a positive impact on the world around us. And our pensions are no different.
With an estimated £3 trillion in UK pensions used to bankroll everything from sustainable investments such as wind farms and other renewable energy sources, to tax-evading corporations and weapons, it’s more important than ever to know where our money is actually being invested. Which is where ethical pensions come in.
First, let’s establish what an ethical pension actually means. Ultimately what we deem to be ethical can be fairly subjective. But in its simplest form, an ethical pension is an investment that has been carefully chosen because it either avoids companies and sectors that have negative impact on environmental, social and governance (ESG) issues. Perhaps more importantly though, these morally conscious investments go out of their way to actively improve the world around us.
For as long as we can remember, we’ve been told that our pensions are the key to a comfortable retirement. But with ethical pensions, you can be the key to a better future world for others too.
So now we’ve got that out of the way, in this article we’ll explain:
- Benefits of an ethical pension
- What to be wary of
- What you should be asking your independent financial adviser
Benefits of an ethical pension
- Be a cause for change: We’re only ever a few news stories away from another company that’s been uncovered for making poor ethical decisions. Whether it’s mistreating their staff or polluting the environment – we all know what bad looks like. So having an ethical pension means investing in companies that value the same things you do, which means you can help contribute towards a sustainable future whilst you save.
- Show your support for companies that try to change the status quo: Businesses that go above and beyond to look out for their staff by making their expenditure transparent and creating an environmentally conscious supply chain will reap the rewards from your investments.
- Invest in resilience: Sustainable investments were particularly robust when the market was dealt a heavy blow at the start of the pandemic. As well as benefiting the environment, these ethical pensions are less prone to taking sudden hits that sectors such as travel may be.
What to be wary of
- ‘Greenwashing’: Some companies may fly the flag for being ethical or sustainable but they can either move the goalposts or bend the truth completely in regards to what they do behind closed doors. This is what is meant by ‘greenwashing’. Frustratingly, there isn’t currently an official set of guidelines that fund managers must adhere to in order to be classed as green. This means research is key. But don’t worry, keep reading and we’ll tell you some of the best ethical pensions on the market in 2022!
- Being ‘ethical’ is subjective: Each fund manager will have their own specific way of scoring companies and industries. So even if a fund isn’t intentionally greenwashing, understanding whether your pension plan fits with your own ethics should be something you carefully decide for yourself.
- Transparency is key: If there isn’t a clear ethical investment fund policy, it’s likely that one doesn’t exist. If you’re serious about investing in a fund that is seeking a positive impact, then knowing exactly where your money is going is crucial. Be clear about your non-negotiables, for example not wishing to invest in the fossil fuel industry and keep looking until you find the fund for you.
What you should be asking before choosing your ethical pension
Now you’ve weighed up the pros and cons that an ethical pension can conjure up, here are some questions you should be asking before making your final decision on where to invest:
- Does the fund come recommended by someone I trust? Investments should be treated like anything else you’d spend your money on. Seeking help from an independent financial advisor is always advisable. But before that, you can even ask friends or family members that you already know share some of the same values you do.
- Where isn’t my money going? As much as it’s important to identify where your money is being spent, you might always want to gain an understanding of where your pension isn’t being invested. Exclusions such as gambling and tobacco are commonplace for ethical pensions although it’s always worth checking for sure.
- How to switch if my current pension doesn’t meet my requirements? If you’re worried that your current workplace pension isn’t quite aligned with your morals and ethics, that’s okay, you can change your plan. Here is a list of some pension providers and some of the ethical funds that are available.
The idea that your pension can be a source for a tangible and positive change is really starting to hit home with pension holders. A NerdWallet survey found that most pension savers are hopeful about the power of their pension, and 82% agree that investing ethically will be able to influence how companies behave, and spend, in the future.
As well as the benefits to the greater good, what we’re also seeing now is ethical pensions supersede their traditional counterparts and produce an even greater return on investments. So do good for yourself, do good for the planet and do good for the future generations to come. A small change that can make a big difference. What’s better than that?
Want to take a deeper dive?