There’s only one real way to tackle this if your company forces you to pay into their pension, and that’s to pull together a team of staff to push for the company to divest their pension. This should be happening everywhere to tackle the crisis.
If you have a choice about where your pension goes, then set up a pension fund which doesn’t invest in oil and gas. I’ve done that successfully with Scottish Widows…
Obviously when you move companies you can pull over pensions into those that are more ethical.
Interesting view points. Maybe you should post the details of your pension provider. I used Scottish Widows before, worst pension ever, my tip would be keep a check. I recently read an article on the world’s largest VC who’d lost about 80bn value based on investment in fossil fuel companies et al.
I think where we might get it wrong / could go wrong is in terms of going mad / environmentally friendly on everything to our own long-term detriment. For me it is all about incremental change / improvement on a long list of things that I can do.
One end of the spectrum might be my sim only deal with a company that is ethical / green and the other end of spectrum is my pension. My pendulum swings half way but am yet to be convinced about the fiscal ability of companies dressing up “green” pensions.
This always leads me to the question of how willing I am / we are to be worse off for doing the right thing i.e. a return rate on say £500k in a pension at a difference of between 3% and 7% is huge.
I’d be interested in what others think.
The UK pension system can be complex but typically most individuals now have a reasonably simple Defined Contribution or Personal scheme established by their employers. Auto-Enrolment (AE) in the UK means that most schemes are moving to these types of plans.
AE schemes are low-cost and flexible so typically work well for individuals looking to save regularly and get tax relief on their savings.
Employers are required by law to pay-in so that helps the fund to grow ahead of retirement.
It’s not easy to divest within these schemes, for two reasons; some “ethical” funds still hold fossil fuels and not all providers offer even a basic ethical fund.
The point above is well made, in that it’s entirely reasonable for individuals to ask that their employer should provide a good ethical option. However this usually will incur some costs, which should be met by the employer; the cost of setting up a good quality ethical/environmental option is not huge but there’s no legal requirement for employers to offer this.
One option is to deal with this yourself and make investment switches within the scheme, this is usually done online.
But given how complex and opaque the funds sometimes are that’s not an easy option.
On the point about performance above, I am responsible for a number of schemes and the reality is that sustainable investment schemes with no fossil fuel exposure have actually delivered very strong returns; this is looking at ten year performance data.
So I’d certainly dispute the suggestion that investing into low carbon solutions is an inferior investment strategy.
Very interesting perspective so thanks for that. I wasn’t claiming that non fossil fuel options performed worse, I don’t know is the answer, and you clearly do. I figure I was trying to suggest that the options for more ethical “pensions” were more limited (again an assumption) and as to whether that had a knock on on performance. My overriding point being how much we are, as people / consumers / people saving for the future, happy to forgo monies (again assumption based on my basic premise on non fossil performance) in order to create a better century.
This is based on my experiences at Ecotricity setting up an eco mobile phone network where people were not convinced about smaller data packages et cetera where they felt they were losing out to do the right thing.
I am eternally intrigued by the balancing of doing the right thing versus losing out a bit and what people end up choosing to do.
Thanks once again for your note, I found it really interesting to fill in my limited gaps in this space.
Hi Alan, just happy to share my knowledge and experience of sustainable and responsible investing. It’s great to find people who are interested in a relatively complex topic.
I think it’s vital more individuals engage with the investment industry as it’s the only way to change the way the business functions. And given the UK savings and pensions market is worth £5 trillion it has a lot of influence.
Just on the performance point.
I’ve conducted a study on this point going back around 20 years now and the key differences are:
Sustainability investors suffer a small premium/additional cost for investing in accordance with their values. This is because conventional investors employ trackers rather than active managers. A tracker will costs as little as 0.10% per annum. Sustainability funds invest in a lot more research and this comes at a cost, increasing fund costs up to 0.85-0.90%.
Some of the leading sustainability funds have delivered very strong performance over the past five years and are well ahead of many conventional investors. However, because the portfolios are overweight mid-sized, growth businesses there will certainly be periods when sustainability funds under perform against the wider market.