In recent years there’s been a significant shift in the popularity of ethical or green investments. But can your pension play a part in helping the planet – and still support your financial plans? Ed Read Cutting, our Director – Belgium, takes a look at the role of a sustainable pension.
The environmental challenges which face future generations are now well understood, with the most recent report from the IPCC worryingly showing that things could actually be even worse for the planet than we thought. The motivation for building a greener investment portfolio has never been stronger, especially if you are keen to pass on your wealth to future generations, and want to ensure your financial portfolio remains relevant over the long-term.
So how can your pension help tackle the environmental crisis, and deliver on your long-term financial objectives?
It’s worth bearing in mind that inheritance wealth is due to grow significantly over the next two decades. So, passing on assets to the next generation (known as intergenerational wealth) could be an important consideration when you’re planning ahead. And if you are thinking about passing on assets to your children or grandchildren a pension can be a useful and effective way to do just that. With all this in mind it could be worthwhile in ensuring that your pension can stand up to the test of time by incorporating green or more ethical funds. It’s also encouraging to see that green pensions are more effective at cutting climate change than other some approaches.
The issue of transparency is an important one when considering any aspect of investing, including building your pension pot. New campaigns to better identify where pension money is being held have sprung up in recent years, including the Make My Money Matter campaign. This people-powered initiative, as well as demanding more transparency over pension fund holdings, aims to ensure that those investing have a voice to call for pension pots to be used to build a better future by tackling global issues such as climate change. The campaign has picked up high profile interest and has shared some interesting research. One of the key findings was that pensions hold enormous power and can be 21 times more effective than giving up flying, going veggie and switching energy provider. In addition, transferring the average UK pension to a green equivalent reduces greenhouse gas emissions at the rate of almost three times the average UK carbon footprint.
It’s worth bearing in mind that whilst these findings reference UK pensions, the same effect applies when making green changes to any global pension, savings or investment. The key is in making the change; for many people moving their investments to green alternatives is the most powerful way to have a direct influence on that shift.
As an aside, it’s useful, and perhaps heartening, to think that in 10 or 15 years’ time we probably won’t even be talking about ESG investing or pensions; the concept will be ubiquitous by then. But until that point, steering your pension into greener territory not only helps make the difference now, it can help future proof your assets not only for you but importantly for your children or grandchildren too.
If you are considering a more sustainable approach to your pension pot or any aspect of your investing, our in-house ESG (Environmental, Social & Governance) model portfolios are negatively screened, targeting managers that avoid or limit exposure to environmentally and socially damaging sectors, who recognise that management of ESG factors can positively impact businesses.
To discuss your own pension plans please contact your nearest office.