ESG Investing  

Can retirement savers make their pension greener?

This article is part of
Guide to pensions and ESG

“Do they want to have some themes, and perhaps steer away from oil and gas and towards climate transition stocks? Or do they actually want to be investing positively and intentionally in, for example, climate solutions if they’re following an environmental theme?”

PensionBee is an example of a provider that offers fossil-fuel-free investing, with a plan that excludes the oil, gas and coal industries, among other things, by passively tracking the FTSE All-World TPI Transition ex Fossil Fuel ex Tobacco ex Controversies index.

“Many indexing approaches will still include tobacco and oil companies,” says Clare Reilly, chief engagement officer at PensionBee. “If [savers] don't want to include oil in their pension then they will need to go fossil-fuel free, which can mean going down the active management route.”

Following feedback from customers in its fossil-fuel-free plan, which launched in December 2020, Reilly says the online provider is exploring a new impact plan that goes even further in its exclusionary policy.

The future for ESG-focused pensions

ESG investment strategies are becoming more mainstream, with more funds being created on a weekly basis, says Thomas Lee, an adviser at My Pension Expert.

While awareness of ESG issues is growing among pension schemes and across society more broadly, Wilkinson at the PPI adds that direct engagement from pension scheme members remains low.

“[This] is perhaps unsurprising, given low levels of engagement with pensions in general. However, collective initiatives, such as Make My Money Matter, are working to increase awareness of the ESG impact of pension investments among savers.

“And with younger savers expected to be more engaged on ESG issues, it could be that direct member engagement in this area will increase over time.”

Huw Davies, senior finance adviser at Make My Money Matter, says: “Savers can contact their pension provider using the tool on our website and ask them to make sure that their pension is ‘green’, meaning that it is committed to science-based net-zero targets and is putting climate at the heart of its investment strategy.

"They could also ask if they are going further to proactively invest in climate solutions, cutting deforestation from their portfolios, or exercising their shareholder power at AGM season."

chloe.cheung@ft.com