How could your pension help tackle climate change? Here’s what you need to know

Date posted: 02/12/2021

According to Sky News, Boris Johnson has said he’s frustrated by his failure to reach his climate change goals at the COP26 summit. While the prime minister said he would work tirelessly with other countries to deal with climate change, it raises an interesting question.

What can you, as an individual, do to help the planet when world leaders seem to be falling short? While you may think the answer is “not a lot”, research suggests you may have an effective weapon that you don’t even know about that you could use in the fight against climate change.

Read on to discover what it is, and why it could be more effective than many other “green” solutions.

Your pension could help combat climate change

According to Pension Age, a study by Make My Money Matter, Aviva and Route2, revealed that moving your retirement pot to sustainable funds could be a significant way to help tackle climate change.

Researchers found that if your pension is worth around £100,000, you could save up to 64 tonnes of carbon dioxide a year by switching it to a sustainable fund. This is the same as nine years’ worth of a Briton’s average carbon footprint.

In fact, moving your pension could be so effective in helping the environment that researchers claimed it was probably one of the best things you could do.

Moving your pension could be more effective than giving up flying

Researchers found that moving a pension to sustainable funds could be 21 times more effective in cutting your carbon footprint than giving up flying. It could also be significantly more effective than several other actions you might want to take to help the planet.

For example, it’s 20 times more powerful than driving an electric car, 57 times more effective than adopting a vegan diet and could be 40 times better than switching to a renewable energy provider.

Small surprise that Make My Money Matter has launched a campaign encouraging UK pension holders to consider sustainable funds in their retirement strategy. So why could this make such a significant impact on your carbon footprint?

Sustainable investments help limit a company’s impact on the environment

Today sustainable investments are better known as “Environmental, Social and Governance (ESG)” funds. These refer to the criteria used to measure the impact of a business’s activities on the planet and society.

This means that when a company is assessed, the following is typically considered:

• How does the company’s operations affect the environment?
• Does the business aim to be as energy-efficient as possible?
• Does it manage its waste responsibly?
• How does the business treat its workers?
• How transparent are its accounting methods?
• Can shareholders vote on key issues?

When you consider the energy consumed and waste generated by some businesses, you can see why meeting the ESG criteria could significantly reduce their environmental impact. As such, it could also be extremely effective in helping tackle climate change.

Some ESG funds have also enjoyed strong performance

While doing your bit to help tackle climate change could be high on your priorities, you may be concerned that investing in ESG funds could seriously damage growth potential. When you consider that your pension pot may have to provide your income for two to three decades in retirement, it’s an important factor.

The good news is that research by FTAdviser shows that certain European ESG funds persistently outperformed non-ESG funds between November 2012 and May 2021.

This dovetails into a report by the Financial Times that revealed that out of 745 Europe-based sustainable funds, nearly 60% delivered higher returns than equivalent non-ESG funds in the 10 years leading up to June 2020.

Small surprise then, that Morningstar revealed that in the six months leading up to the end of September 2021, the amount of money put into global sustainable funds almost doubled.

As your financial planner, we could help you avoid “greenwashed” funds

While ESG funds offer many positives, care also needs to be taken. Their increased popularity has raised concerns that some companies may be “greenwashing”, which is where unsubstantiated or misleading claims are made about sustainable credentials.

This is why it’s important to speak to us if you are considering moving your pension to ESG funds. We’ve been running our own ESG portfolios since 2015 and so have a proven track record in helping clients invest in the causes that matter to them.

We could confirm how sustainable and ethical any investment you’re considering is, and provide options if necessary. This can give you the peace of mind that your pension is in line with your ethics, and that you’re potentially doing something positive to tackle climate change.

In addition, we could also confirm whether switching your pension is right for you, as transferring it could expose your retirement pot to greater levels of risk and higher charges.

Furthermore, you may lose benefits that you already have on your existing pension that you’d probably rather keep, such as the ability to take a larger tax-free lump sum than the usual 25%.

Get in touch

If you’d like to discuss putting your pension into ESG funds, or your retirement more generally, please contact us at info@douglaswhiteltd.com or call 0151 345 6828 to find out more about how we could help.

If you know someone who may also be interested in ESG funds, please pass on our details as we’d be pleased to speak to them. Alternatively, if they’re happy to be contacted, we’d be delighted to give them a call.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

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.