More companies than ever are setting sustainability goals, including reducing their contribution to climate change. Yet, research of FTSE 100 companies suggests that many could be overlooking a vital component – their pension schemes.
The FTSE 100 is a collection of the top 100 largest companies listed on the London Stock Exchange in terms of market value. As a result, it represents some of the largest companies in the UK and is often used by experts to measure economic prospects.
If you invest, including through a fund or pension, some of your investments could be included in the FTSE 100.
Less than 10% of FTSE 100 companies include pensions within their sustainability strategies
Despite many companies in the FTSE 100 making environmental, social, and governance (ESG) commitments, fewer than 10% mention pensions in their sustainability strategy, according to a report from Scottish Widows and the Make My Money Matter campaign.
The report found FTSE 100 companies finance 131 million tonnes of unreported carbon each year. It means pension investments of major FTSE 100 companies finance seven times more carbon than their UK company emissions.
So, while a company may be taking steps to reduce its direct contributions to climate change, they may not go as far as you think.
More than £2.7 trillion is invested in pensions in the UK, so it can have a significant effect on climate change and sustainability goals.
The research suggests that it isn’t just an issue the largest companies are overlooking either. Just 45% of CEOs and business leaders know that their company pension schemes could be contributing to these global challenges.
Yet, the research found that many employees want their pensions to reflect sustainability goals.
More than 7 in 10 workers want their employer to invest their pension sustainably. It’s important to job seekers too. Sustainable pensions were in the top five priorities job hunters are looking for, alongside flexible working and an attractive holiday package.
If sustainability is something you think about when making financial decisions, could you have overlooked your pension?
3 things to do if you want your pension to be sustainable
1. Check the fund options your pension scheme offers
If you’re already paying into a defined contribution (DC) pension, reviewing the fund options your existing scheme offers is a good place to start.
Usually, a pension provider will offer several different funds so that members can choose one that suits their needs. These will often have different goals, and it’s now common for providers to offer at least one fund that considers sustainability. This may be called an ESG, responsible, ethical, or sustainable investment fund.
Even funds that are not labelled sustainable could have criteria that still reflect your goals. For example, some providers are working towards removing fossil fuels from all their funds. So, don’t overlook a fund simply because it doesn’t have a buzzword in its name, it could still be right for you.
2. Review the risk profile of the funds
While you may be keen to invest sustainably, you also need to consider your own financial position and goals.
All investments carry some risk; however, this can vary significantly. Before you move your pension to a sustainable fund, you should understand if it fits into your risk profile.
Taking too much risk could mean your pension savings are exposed to more volatility and there’s a higher chance that the value of your pension could fall. Alternatively, too little risk could mean your savings don’t deliver the returns you’d hoped for. So, striking the right balance is important.
If you have any questions about your risk profile and how to reflect this in your pension decisions, please contact us.
3. Read the sustainability criteria
Sustainability covers a broad range of areas. A fund’s criteria will set out how investment decisions are made and its goals, so reading this can help you understand if a fund would meet your needs.
Keep in mind that you may need to make compromises. While a fund may avoid investing in companies that operate in fossil fuels, for example, some investments may contribute to environmental damage in other ways.
Finding a fund that perfectly matches your sustainable values may not be possible, so setting out your priorities and the areas that are most important to you can help.
Contact us to talk about your pension
If you have questions about how to make your pension, or other assets, more sustainable, please contact us.
We can work with you to create a balance between sustainability and reaching personal goals. Regular reviews with a financial planner can also help ensure your investments continue to align with your wishes.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts