According to Scottish Widows’ second annual Green Pensions Report, only 10% of pension savers have fully switched to green pensions, due to a lack of information and access to them.
The report comes as UN climate talks take place in Dubai as part of the COP28 summit.
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“Most people are still unaware that pensions are one of the most powerful tools at our disposal to make real progress towards net zero,” comments Shipra Gupta, responsible investment lead at Scottish Widows.
The insurer says Brits could collectively save up to 386 million tonnes of carbon emissions annually if they moved their retirement savings into green pensions - the equivalent of 11 return flights from London to New York per person.
The low take-up of green pensions is despite an overwhelming interest in sustainability. The report found that three-quarters of employees (74%) have a keen interest in finding out more about sustainable options for their retirement funds.
While ethical investing is becoming more popular - such as through stocks and shares ISAs and investment accounts - and green savings accounts are also gathering momentum, it seems that pensions are lagging in this area. One problem is that not all workplace pension schemes offer green or ethical options.
The Scottish Widows report found that almost a quarter (23%) of companies surveyed do not offer green or ethical pensions to their employees.
We look at how to move your money to a green pension, and the impact it could have.
Why switch to a green pension?
A green pension is a fund that aims to generate returns for savers via environmentally positive investments. These investment funds normally have an objective of environmental considerations, such as avoiding or reducing investments in fossil fuels, and/or focusing on investments that will support reductions in carbon emissions.
While the number of green pension savers is low, awareness around the impact that your retirement money has on the planet is growing.
Campaign group Make My Money Matter highlights the importance of using your pension savings to do good.
Its latest campaign video featuring Academy Award-winning actress Olivia Colman recently went viral. Colman plays “Oblivia Coalmine”, an oil executive who thanks pension savers for allowing oil and gas companies to “dig, drill and destroy more of the planet than ever before”.
According to Make My Money Matter, UK pensions invest £88bn in fossil-fuel companies, the equivalent of £3,000 per pension holder.
The group claims that making your pension green is “the most powerful thing you can do to protect the planet”, and that it’s far more effective “than going veggie, giving up flying and switching energy provider”.
Of course, whether or not to “green your pension” comes down to your own values and beliefs. Some investors are comfortable investing in fossil fuels. Others may want to invest their money “ethically”, but that may look different to other people’s idea of what “green” or “ethical” means.
How do I move my money to a green pension?
If you don’t want to invest in fossil fuels and do want your pension cash to be “green”, you can contact your pension provider via Make My Money Matter. This will send an email to them, and add your voice in calling for a greener investment strategy. Your provider may also reply to you detailing the green or ethical pension investment options already available.
To take more decisive action, you need to first understand how green your pension savings currently are.
With a workplace pension, you will be limited to investing in the fund range from your pension provider. There is often an ethical fund option, which will typically filter out companies that don’t meet environmental, social and governance (ESG) criteria.
Look out for ESG or SRI (socially responsible investment) in the fund names, as well as “ethical” or terms like “renewable energy”. You can decide which fund is the right fit for you, and whether you want to put your whole pension in the fund, or a percentage into an ethical fund and the rest in mainstream funds.
If you have a DIY pension, such as a self-invested personal pension (Sipp), there is likely to be a much wider range of green investment funds. These may include active and passive funds, those that focus on a particular area like clean water, ones that invest in the UK and those that invest globally.
With a Sipp, you may be able to buy shares in companies that you believe to be green or ethical as well.
We have lots more tips and ideas in our ethical pensions guide, from the best ethical funds, to questions to ask when choosing an ethical or green pension.
Ruth is passionate about helping people feel more confident about their finances. She was previously editor of Times Money Mentor, and prior to that was deputy Money editor at The Sunday Times.
A multi-award winning journalist, Ruth started her career on a pensions magazine at the FT Group, and has also worked at Money Observer and Money Advice Service.
Outside of work, she is a mum to two young children, a magistrate and an NHS volunteer.
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