The survey of 1,003 individuals aged 40 and over with pension savings found only two fifths (43 per cent) of respondents understood what the term ESG means.
Only 9 per cent had incorporated ESG into their retirement strategy within the previous five years. Even fewer (7 per cent) had discussed their ESG preferences with a financial adviser.
Half (45 per cent) want pension schemes to make ESG information more accessible.
Vicky Kiosse, associate professor of accounting at Exeter University Business School said greater effort needed to be made to communicate ESG information to individuals with pensions in order to tackle climate change in the long run.
To translate interest into action it is imperative to make ESG-related information available in a clear and understandable way.Vicky Kiosse, Exeter University Business School“There is clear interest in incorporating ESG considerations in retirement strategies. However, to translate interest into action it is imperative to make ESG-related information available in a clear and understandable way.
“This can be partly achieved by actively considering climate-related issues in pension investment strategies. Communicating the impact of such investment strategies to individuals currently considering alternative pension savings options as well as those with pension savings will enhance awareness and increase the likelihood of considering ESG-related issues in the context of pension retirement strategies,” she said.
Despite the low number of savers who had already incorporated ESG into their pension strategy, many more were in favour of doing so.
More than two fifths (43 per cent) supported the UK Government placing pressure on pension schemes to transition away from investments that are driving deforestation and 36 per cent support the UK Government’s policies that force pension schemes to mitigate for climate change more widely.
Andrew Megson, executive chairman of My Pension Expert, echoed Kiosse’s comments.
"British enthusiasm for ESG-based retirement strategies, and government policies, is evident. But without the right information, it will be impossible for Britons to make informed investment choices that support their personal ethics.
“It is vital that pension providers, schemes and investments make their ESG information available to the public – and this will likely only be achieved with the appropriate reporting guidance and effective education from regulatory bodies, as well as the government itself. Progress is being made on this front. However, the government and regulatory bodies must do more to push forward formal regulations and deadlines for such reporting if they are to encourage more people to incorporate ESG into their strategies.”
Megson added that we can’t ignore the fact that the majority of people still do not seem to understand ESG and has called on the regulatory bodies to facilitate access to such information, develop separate guidance and outline best-practice for advisers to ensure firms are able to provide clients with consistent and reliable information.
He said: “These steps will essentially kickstart a positive ESG-centric cycle within the retirement sector. With access to the right information, advisers will likely feel more empowered to actively advise on and promote pension investments and schemes that promote their clients' ESG preferences.
"Consumer understanding of ESG will consequently rise and so will their confidence in pursuing such ventures within their retirement strategy.”
Back in March, work and pensions secretary Thérèse Coffey described pensions as a “potential superpower” in the fight against climate change.
In a speech delivered to the Pensions and Lifetime Savings Association’s ESG Conference 2022 on managing climate risk, Coffey outlined the important role pensions can play in helping the UK meet its climate targets and ensuring a safe, inhabitable earth for current and future generations.
Not all advisers were convinced, however.
Neil Liversidge, managing director of West Riding commented the survey results align with his experience with clients but that it is not his job to “ram” ESG down their throats.
jane.matthews@ft.com
