Jeremy Edwards, Independent Financial Adviser from Martin-Redman Partners, talks about the benefits of investing your pension in companies whose practices and values align with your own environmental or ethical beliefs.
Changing the world by managing your pension
There is reportedly £3trillion tied up in pension investments, but apparently only 5% of people have made any alterations to how their funds are invested. By default, fund managers will chase returns and pay little attention to other factors, although there now seems to be more interest in the idea of sustainability.
People talk about “ethical” investment; but do not always make the connection between their pension funds and investment, leaving their pension to the default funds but taking a more active interest in their ISA or personal shareholdings.
As an Independent Financial Adviser (IFA), I am very interested in “joined-up” thinking; these days with modern investment products it is straightforward to have the same portfolios in pensions, ISAs, bonds or general investments. It is also quite straightforward to have a sustainable slant to your investments, once you have isolated what you are trying to achieve and what investments are not acceptable to you. Unfortunately, there are likely to be some compromises along the way as fund managers will try to play to the best paying audience and a truly bespoke portfolio is too expensive for most retail investors.
Sustainability is often in the eye of the beholder; most traditional “ethical” funds exclude nuclear power, (the bogeyman for the 1960s-2000s green pressure groups), where now it is seen as the great hope for bulk low-carbon electricity. A number of conventional high carbon industries are repurposing themselves for the low-carbon economy, but it will be a long haul, with companies like BP spending huge sums of money, but tiny percentages of turnover, on green technology, like PV generation and EV charging.
For anyone with a workplace pension, it is worth having a hard look at what you are invested in. If you are in the default fund, although it will be cheap, it probably will not match your attitude to investment risk and it is unlikely to have an ethical or sustainable slant.
The new campaign, “Make My Money Matter” emphasises both the power of pension money, but also the choices open to investors, that so far, so few have made. According to the campaign, “having a sustainable pension can be 27 times as much impact on reducing your carbon footprint as giving up flying and becoming a vegan combined”. Many pension providers do have an ethical or sustainable fund, but you will have to seek it out and decide whether you are willing to accept any compromises inherent in it.
For someone starting from scratch, consolidating a number of old schemes, or just uncertain of how to get to a better place, ask an IFA to find what you want. Some of us have been involved in green issues for many years, I have an environmental science degree from 1984!
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