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Sustainable Pensions; financial planning for a greener future?

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“The financial system has lots of people who are thinking short term, but pensions are really long term and therefore can take account of issues like climate.” Nick Robins, Professor of Sustainable Finance, London School of Economics, UK.

Sustainability is a key driver across all sectors and all industries. The government are offering tax breaks for companies who can prove they are reducing their carbon footprint, but how do pensions factor into this?

In fact, pensions are extremely important when it comes to reducing our carbon footprint and will play an increasingly vital role in this as global corporations strive to demonstrate sustainability in how they operate but also in who they do business with. In addition, supporting investments and corporations that have sustainability at their core will future-proof pensions in the long term.

What are the characteristics of a green pension?

Essentially, green or sustainable pensions should demonstrate the following:

  1. The entire portfolio of pension assets should equate to ‘net zero’ and look towards achieving a halving of emissions by 2030
  2. There should be active engagement with investee companies to push them to reduce emissions
  3. Investment into climate change solutions such as clean, renewable energy (solar power, wind farms), biodiversity or regenerative farming
  4. Controlled divestment from industries and companies involved with fossil fuels such as coal and gas and who have no intention to reduce their high emissions

What can we do individually?

On a personal level, setting up a sustainable pension is one of the most powerful tools we have at our fingertips to minimise our individual carbon footprint. Planning for one’s future might seem like a distant goal. However, it is important that as individuals we plan in a way that not only enables us to achieve our goals but upholds our beliefs.

Pensions are an incredibly powerful tool to wield as they represent a large proportion of the financial market: “As of 2020, pension fund investments in the UK amounted to more than 3.59 trillion U.S. dollars. Investment of Pensions Funds in the UK from 2006-2020, F. Norrestad.

Green investment as a staff incentive?

“It is crazy that our banks and our pensions are investing in fossil fuels, when these are the very things that are jeopardising the future we are saving for.” David Attenborough

There is over £2.6 trillion invested in pensions in the UK according to the ONS, which is money that could be put towards hitting targets set by the Paris Agreement. For companies working towards hitting sustainability goals, investing in pension schemes that connect with carbon neutral goals is essential and puts into practise a clear demonstration of their core values.

Investing in a greener future is also a strong motivator for your staff and will help to attract and retain employees – particularly those in younger age groups. It demonstrates that your company is a leader in planning for a greener future rather than investing in fossil fuels. You will also help your employees to engage with financial planning as they are more likely to take an interest in their money if they understand where is being invested.

Sustainable pensions should become the norm as opposed to an option and hopefully, as more companies invest in sustainable options for their employees, this will become a major driver towards a greener future.

Contact Us

If you would like to discuss greener pension options as an individual or an employer, please don’t hesitate to contact me  for advice or a member of the financial planning team.

Michael lapham director of financial planning

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