It’s all very well to recycle, eat less red meat and bring your own coffee cup, but if your hard-earned pension savings are fuelling industries that are harming the planet, that’s probably a clash of values.
It’s easy to feel detached from your pension – maybe it’s automatically deducted from your salary and the payout is years away. But pensions have a big influence on where the world’s money gets directed.
Occupational pension funds in the European Economic Area have an overall balance sheet of about €2.5 trillion. Irish pension funds are worth about €138 billion, according to Central Bank figures. If each of us tried to invest our money more sustainably, this could play a significant role in putting economies on a more sustainable track.
Demand in Ireland
Irish pension savers are becoming increasingly conscious of what they are investing in, says certified financial planner, Ciarán Hughes. His company Ethico helps individuals and companies to “divest their money from negative industries and supercharge positive ones”.
“The main driver for most of our clients is to ensure their savings are not supporting negative industries like fossil fuels, weapons or tobacco,” says Hughes. “Another strong requirement is redirecting those savings towards more favourable industries, in order to create a positive impact, while generating strong returns.”
“Greening” your pension is “21 times more effective than giving up flying, becoming a vegetarian and changing your energy provider combined”. That’s according to the UK not-for-profit campaign group Make My Money Matter.
Oscar-winning actress Olivia Colman fronts a provocative ad for the campaign aimed at waking people up to their pension choices. Playing a sinister, latex-wearing oil executive “Oblivia Coalmine”, Colman thanks pension savers for their contribution to helping the oil industry to “dig, drill and destroy more of the planet than ever before”.
UK pension schemes invest a staggering £88 billion [€104 billion) in fossil fuel companies, that’s £3,000 per pension holder, Make My Money Matter calculates. For every £10 a person in the UK puts in their pension, £2 is linked to deforestation, it says.
Such campaigns raise awareness about where exactly our hard-earned pension contributions are going. Of people in Ireland who used a financial adviser in 2023, the majority said they would like their adviser to talk about responsible investing more. That’s according to a study by asset manager Amundi. Among those aged 18-34, this rose to 69 per cent. For those classed as ABC1, it was 63 per cent.
Workplace pension schemes
If you’re looking to green your pension, it can be hard to know where to start. The first step is to get familiar with the fund where your contributions are invested..
Most pension providers have an online portal where you’ll find a “fund fact sheet” showing a breakdown of where your money is invested. These sectors might include “information technology”, “healthcare”, “consumer staples” or “industrials”. It may surprise you that some of your money is going toward companies of which you take a dim view.
It can be hard, but not impossible, to exert influence on your workplace pension scheme. “There’s been a move in the Irish pensions industry to funnel everyone into what are called ‘master trusts’, which are basically a single trust for running the pensions of many employers,” says Ralph Benson of savings and investment advisers, MoneyCube. “In the big employer pension schemes, trustees are being pushed to simplify and have fewer options for people.”
“But trustees have to at some level acknowledge the voice of members who are getting pensions ‘done’ to them,” says Benson.
If their employer’s glossy annual report brags about sustainability, but its pension scheme pumps money into industries that are heating up the planet, concerned employees may wish to raise this with their company’s corporate responsibility, finance or pension heads.
“Yes, it does come down to that kind of pressure,” says Benson.
Employees’ expectations are shifting, they care about the impact their money is having, according to Make My Money Matter. Corporations already taking action on employee pension schemes include EY, Ikea, Tesco, Brewdog and BT, it says.
For those wanting to follow suit, Make My Money Matter provides a checklist of questions for trustees to ask pension providers:
“Do you have net-zero emissions targets aligned to 1.5 degrees, including a halving of emissions by 2030? Do you invest our pension in any fossil fuel companies? Do you invest our pension in any companies conducting deforestation? Do you have plans to increase investments in the solutions to the climate crisis, like renewable energy? How much of our pension is invested in companies like this? How do you engage with the highest emitting companies that you invest in and do you publish a clear voting policy? At what point do you consider divesting from these companies?”
Organisations who actively live their values are particularly motivated about what their money is funding, says Benson.
“We have a number of charitable clients who aren’t prepared to sign up to the mainstream stuff,” he says. “While they won’t dictate what their people invest in, they definitely want them to have the option of certain kinds of funds.”
If your employer’s pension fund is not aligned to your values, and they are not for turning, you have options, says Benson.
“You can do the bare minimum in the [employer] group scheme and be more self-directed with any additional voluntary contributions (AVC),” he says.
“You can use the Standard Lifes or the Avivas of this world to do that kind of thing or there are also specialist funds,” says Benson. “We’ve looked at funds that invest in female-led businesses, or positive impact funds. Standard Life has one where they measure their investments against the extent to which they meet the UN Millennium Development Goals.”
These include eradicating hunger, increasing equality, combating disease and environmental sustainability.
If you don’t have a workplace pension but have arranged one yourself, you can ask your broker or a pension provider about more sustainable options, or talk to a financial adviser with experience in the area.
Quiz the provider about the fund, such as whether it excludes things you are averse to, like weapons or tobacco for example, says Hughes. Ask what positive impacts the fund targets, such as the UN sustainable development goals, and how this is measured. You could ask how the fund manager uses their clout to improve the corporate behaviour of the companies in the fund, he says.
Greenwashing?
Despite giving pension providers thousands from our pay cheques to steward each year, we don’t all trust them to tell the truth about what they are doing with it, according to research.
More than six in 10 EU consumers don’t trust the sustainability claims of the pensions industry, or believe they are misleading. That’s according to a Eurobarometer survey by the EU’s own insurance and occupational pensions regulator, the European Insurance and Occupational Pensions Authority, carried out in June 2022.
[ Sadhbh O'Neill: We are living in an age of unprecedented greenwashingOpens in new window ]
A rash of EU legislation has tried to tackle greenwashing – that’s where the claims of pension and insurance companies about sustainability don’t accurately reflect reality. The legislation hasn’t simplified the process for consumers, says Hughes.
“There are lots of fund options out there that are only marginally better than traditional funds, but they are marketed with language and imagery as an ESG [Environmental, Social and Governance] choice,” says Hughes. “You need to get under the bonnet of what the fund actually invests in and how it’s managed from an ESG perspective,” he says.
The fund fact sheet might tell you that “ESG considerations are built into the fund” or and that it’s “compliant with Article 8 of SFDR [Sustainable Financial Disclosure Regulation]”. But this can be cold comfort, says Hughes.
“The low sustainability requirements for Article 8 funds have led many to be quickly labelled as ‘sustainable’, often without significant changes, potentially misleading customers about the true sustainability of their investments,” says Hughes.
New guidelines in November are about ensuring funds using ESG-related terms are doing so accurately. “While it looks good on paper, we remain sceptical until we see the real-world implementation,” says Hughes.
The upside is that people are asking more questions, says Benson, and sometimes the answers aren’t straightforward.
“It’s not as simple as ‘no oil and no gas’, because that might mean putting money into something that is mining rarer materials under questionable regimes around the world – there are degrees of complication,” he says.
“We’re in the foothills of developing a sensible structure for measuring sustainability now, but it will happen.”
Pension providers give us options – some will be sustainable, some not, it’s up to us to make the right choice, says Hughes. There are authentic sustainable options available, that perform well, if not better than less sustainable ones. Asking questions and educating yourself will help pension savers to choose wisely.
Sacrifice performance?
You don’t have to sacrifice returns for your principles. Taking a more active interest in your pension investments generally, and redirecting them towards new sectors, can pay off.
“It’s a common misconception that ethical and sustainable funds underperform when compared to traditional funds,” says Hughes. “In fact, in the past, many sustainable funds have actually outperformed their traditional peers,” he says.
While results can vary depending on data and methodologies used, studies point out that ESG funds have outperformed traditional funds over the long run, he says.
“Fossil fuel companies have consistently underperformed when compared to global stock markets for decades,” he says. “This raises the question, why do we continue to support negative industries if they are a drag on returns?”
Science is increasingly telling us that some industries are changing our climate or harming health. These industries won’t continue as they are. Some are being replaced by alternatives, and this presents a risk to investors.
Your pension is important for your future, so it’s important to get these basics right first, such as the level of risk for your age profile, the charges, diversification, returns and access to your pension of course.
The tech industry has performed well the past 10 years, while things such as oil, gas, coal, porn and tobacco have not, says Benson. “What I’d say is be aware, what you can end up doing is concentrating your exposure in a particular way, like 2022 was a bad year for tech stocks, so always spread your risk.”
It’s possible to create a genuinely sustainable portfolio in Ireland, says Hughes, but the right advice is crucial to achieving your financial and sustainability goals.
