In November 2021, Glasgow hosted the UN Climate Change Conference (COP26), which saw some of the world’s most powerful people meet to discuss climate change. When it appears many of the world’s leaders struggle to deal with climate change, you may wonder how you as an individual can really make a difference.
According to research, you may be able to do more than you think, courtesy of your pension. Read on to discover why your retirement fund could be one of the most effective weapons in the fight against climate change.
Your pension really could help tackle climate change
According to Pension Age, a study by Make My Money Matter, Aviva and Route2, found that moving your pension into sustainable funds could be one of the most effective ways to combat 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 nine years’ worth of a Briton’s average carbon footprint.
The study found that moving a pension to sustainable funds could be 21 times more effective in cutting your carbon footprints than stopping flying. In addition, it could have 20 times the impact of switching to an electric car, and be 40 times more powerful than switching to a renewable energy provider.
So why might switching your retirement funds to sustainable funds be so effective?
Sustainable investments are now known as ESG funds
Today, sustainable funds are often known as Environmental, Social and Governance (ESG) funds. These stand for the three elements used to measure the sustainability and societal impact of a company, and means it will be assessed on criteria including:
- How much energy a company uses and the level of waste it creates
- Its commitment to natural resource conservation
- How the company treats its employees
- Whether shareholders can vote on important issues.
This means the activities of companies that meet the criteria and are classed as ESG could have a significantly reduced impact on the environment.
ESG funds could be becoming increasingly popular
When you consider the media coverage of climate change, including documentaries like Sir David Attenborough’s Blue Planet, it’s hardly surprising more people want to do their bit for the climate.
This is likely to be behind the increased interest in ESG funds. According to Morningstar, the amount of money put into global sustainable funds almost doubled in the six months leading up to the end of September 2021.
Aside from helping the environment, there may be another reason the funds have become so popular. Research by FTAdviser shows that certain European ESG funds persistently outperformed non-ESG funds between November 2012 and May 2021.
This dovetails with an article by the Financial Times, which reveals research found that out of 745 Europe-based sustainable funds, nearly 60% delivered higher returns than equivalent non-ESG funds over the 10 years leading up to June 2020.
Not all ESG funds may be as sustainable as you think
The rapid growth of sustainable investing has led to some concerns about “greenwashing”. This is when unsubstantiated or misleading claims are made about the sustainable credentials of an investment.
According to Money Age in October 2021, scepticism around the validity of ESG and ethical investments is on the rise among UK consumers. It cites a study by Triodos Bank UK that found more than a quarter (26%) of consumers would not invest in an ethical fund as they question how sustainable they really are.
While it is true to say greenwashing could be an issue, it would be wrong to suggest that all ESG funds make unsubstantiated or misleading claims.
Get in touch
A financial professional could help confirm just how sustainable and ethical any ESG funds you’re considering really are. This could provide peace of mind that the ESG funds you’re thinking of really do meet your ethical and sustainable aims.
If you are considering switching your pension to an ESG fund, always speak to a planner to ensure it’s the right thing for you to do. Remember, the level of risk and potential growth with an ESG fund could differ from the funds you’re currently invested in, and you could lose pension benefits you would probably want to keep.
If you would like to discuss your pension and potentially moving it to ESG funds, please email hello@ardentuk.com or call us on 01904 655 330.
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.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
