In this lesson you will learn 💸
- What a sustainable or responsible pension is
- Why it is so important to invest your pension sustainably
- What pitfalls you need to be aware of
What is a sustainable pension?
A sustainable, responsible, or impact pension is invested in line with your values. For example, more and more people today are making an active effort to exclude fossil fuels or harmful industries such as tobacco from their pension funds.
In recent years, dozens of options have emerged to help you turn your pension green.
Take a moment - can you think of any products or providers you know offer green alternatives for your pension?
Why is it so important to have a sustainable pension?
If you start building your pension in your 20s and retire in your mid-60s, your money has 40 years to fund planet-saving (and profit growing) investments.
In the past, sustainable investing has been criticised as not matching the profit level of unsustainable alternatives. Recent years have shown that this is no longer true; sustainable investments create similar profits and, in some cases, greater profits than unsustainable investments. Finally, making your pension 'green' is now profitable for you and your morals!
In May 2021, YouGov found that 61% of UK adults wanted their pension to play an active role in fighting climate change, and 44% of savers would switch to a green pension to help achieve this. As 'green pensions' and the options available to people become more mainstream, it appears that their popularity will only continue.
How can you make your pension more sustainable?
- Have a look at what your country currently offers in terms of pension schemes - for example, how much choice do you have over your workplace pension. If you're self-employed, this will typically give you greater freedom to find a fund that aligns with your values.
- If you have less choice over your pension fund (for example, in a workplace pension), a great option for change is engagement. This means exactly what you might think - talking about your values, engaging the people in charge, and trying to encourage larger scale change in something you believe in.
What should you be aware of?
The Good: there are more opportunities than ever
Sustainable pension options are slowly but surely becoming a mainstream route into sustainable investing, and that means your options are more accessible, and usually easier to understand - which is always a bonus!
Tip 📌
The easiest way to see where to begin is to have a look at your current pension situation - most companies and organisations now publish 'Impact Reports', which should detail where your money has gone, as well as the overall profit made from pension investments. This should also give a good overview of what industries or values your current provider has already divested from.
The bad: Greenwashing is everywhere
Greenwashing is when companies or organisations make themselves seem more sustainable than they actually are. For example, a company announces that they are donating a percentage of their annual earnings to a sustainable cause; however, they spend 3x as much in unsustainable industries. While donating is always good, this action is a smokescreen to hide their more significant, consistent contributions to unsustainable activities.
Greenwashing will remain an enormous issue for sustainable investors and pensions because of the lack of regulation when using words such as 'ethical' or 'sustainable' to describe your company.
Your action 📝
Is your pension already green?
Whether you are an employee or self-employed, take some time today to explore what funds your pension is invested into. Many pension providers now offer multiple fund options fulfilling different criteria, which means you may be able to go green without the hassle of switching.
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