8 ways your pension can make a difference

More and more of us are tak­ing a cof­fee flask to work, ditch­ing fast fash­ion or becom­ing veg­an. But how many realise that most of our £3‑trillion pen­sion mon­ey in the UK is invest­ed in indus­tries such as oil, weapons and tobac­co? We can change this. By tak­ing prac­ti­cal steps towards a pen­sion fund that focus­es on envi­ron­men­tal, social and gov­er­nance (ESG) fac­tors, we can invest in a pos­i­tive, impact­ful way and not lose out on finan­cial per­for­mance.

1. Define what ESG investing means to you

ESG is not a one-stop shop; it can cov­er every­thing from a company’s car­bon foot­print to its anti-sex­u­al harass­ment pol­i­cy. You may want to avoid tobac­co, alco­hol and pornog­ra­phy. Or per­haps you are veg­an and want to screen out meat pro­duc­tion. In a sea of options, you need to under­stand what your pri­or­i­ties are, but no one ESG pen­sion fund will tick every box. Use inde­pen­dent, online ESG rat­ings tools to find a pen­sion provider and prod­uct that match­es your val­ues.

2. Ask what you are invested in

Whether you have a work­place or pri­vate pen­sion, log on to your online account or dig out the annu­al state­ment. Look at the under­ly­ing invest­ments and how much it’s cost­ing you a year. “The vast major­i­ty of pen­sion mon­ey is in the stan­dard, ‘default’ fund so it’s real­ly impor­tant that these default funds shift to being more sus­tain­able,” says Tony Bur­don, chief exec­u­tive of Make My Mon­ey Mat­ter. “In the mean­time, the bulk of pen­sion invest­ment is caus­ing harm to the plan­et.”

3. Discuss ESG investing options

What could the alter­na­tive be? “If you’re in a work­place pen­sion, ask your human resources depart­ment about it. Write to your provider too and ask for a sus­tain­able or a net-zero pen­sion,” says Bur­don. “It can be hard for indi­vid­u­als and you might not get a good answer at first, but you just have to keep push­ing.” Make sure, how­ev­er, that your employ­er is on board and you will not lose out on their pen­sion con­tri­bu­tion – a min­i­mum of 3 per cent of your salary – if you choose anoth­er fund, even if it’s with the same provider.

4. Research the ESG pension fund provider

Your pen­sion fund might be an ESG option, but also look at the prod­uct provider. “Who is pro­vid­ing that fund and are they com­mit­ted to eth­i­cal invest­ment?” asks Olivia Bowen, char­tered finan­cial plan­ner and part­ner at Castle­field. “Ide­al­ly you want more than one ESG fund on offer so you can be reas­sured it’s not tokenism. You might also want to choose a fund man­ag­er who engages with com­pa­nies he or she invests in – this is called stew­ard­ship – and it should be adver­tised on their web­site.” Anoth­er tip is to check if the ESG team at the pen­sion provider is a core part of the fund man­age­ment team and if the pen­sion provider is a sig­na­to­ry of the Unit­ed Nations’ Prin­ci­ples for Respon­si­ble Invest­ment.

5. Campaign for change

It’s time to act. Sign the Make My Mon­ey Mat­ter peti­tion, speak to your col­leagues, arrange a meet­ing with your boss and write to the provider direct­ly. Edu­cate oth­ers on the pos­i­tive impacts of ESG pen­sion funds, for exam­ple mov­ing your mon­ey to an ESG pen­sion fund can be 27 times more effec­tive at reduc­ing your own car­bon foot­print than going veg­an and avoid­ing planes. “We know from pub­lic sur­veys that the major­i­ty of peo­ple would save more in their pen­sion if they knew it did good,” says Bur­don at Make My Mon­ey Mat­ter. “Don’t wait. Your mon­ey is hav­ing an impact every day it’s invest­ed.”

6. Get financial advice on ESG

Some­where along the way, you may need finan­cial guid­ance from an inde­pen­dent finan­cial advis­er (IFA) who has a spe­cial inter­est in ESG. “If you want to get an extreme­ly well researched port­fo­lio, which can align with your moral val­ues and atti­tude to risk, going to an IFA is the only way you can get this quick­ly,” says David Mac­Don­ald, founder of The Path, a finan­cial advi­so­ry firm. “But choose care­ful­ly as research shows that a minor­i­ty of IFAs feel con­fi­dent advis­ing in this area.”

7. Switch to an ethical option

It’s much eas­i­er to switch pen­sions if you work for your­self, but there are some gold­en rules. First­ly, make sure you don’t lose out on any ben­e­fits, espe­cial­ly if the pen­sion you’re switch­ing out of is more than ten years old. Sec­ond­ly, find out what the cur­rent val­ue and trans­fer val­ue is and whether you’d lose mon­ey when switch­ing. Third­ly, check if there are any addi­tion­al costs. “In most cas­es, switch­ing a fund or to anoth­er provider should be easy and you can do it online,” says Castlefield’s Bowen. “But it’s always a good idea to get finan­cial advice.”

8. Monitor the growing market

Share Action found that 89 per cent of the largest asset man­agers in the world now offer some sort of ESG invest­ing option. Might anoth­er fund or provider be cheap­er and more close­ly aligned with your val­ues in the future? “ESG invest­ment is a fast-mov­ing world and has become more or less main­stream,” says The Path’s Mac­Don­ald. “Fund man­agers and providers are launch­ing ESG funds every week, so it’s a good idea to look at new entrants to the mar­ket.”