How to use your pensions and investments to help tackle climate change

The fifth-largest pension fund in the world – the Dutch fund ABP – has recently announced that it will stop investing in fossil fuels.

According to the Guardian, the pension fund for civil servants and teachers will stop investing in producers of oil, gas, and coal, as well as selling €15 billion of current investments in those sectors.

While it will invest in electricity companies, the car industry, and aviation, the fund claims that it will be better placed to push companies in those sectors to be more sustainable.

Closer to home, meanwhile, a cross-party group of 130 MPs have called for the parliamentary pension fund to divest from fossil fuels in the hope of avoiding a “full-blown climate catastrophe”.

If you’d like to better align your investments with your values, there are steps that you can take too.

Your pension could be your best weapon against climate change

While ABP and British MPs look to eschew fossil fuels, recent research, published by Money Marketing has found that “greening” your pension could be the most important step individuals can take to tackle climate change.

The report from Make My Money Matter, Aviva, and Route2 found that switching an average-sized pension pot from traditional to sustainable funds could save 19 tonnes of carbon a year. If you have a larger pension, of £100,000 or more, the saving could reach 64 tonnes of carbon. This amounts to nine years of your average carbon footprint.

That makes switching to green pension funds 21-times more effective at cutting your carbon footprint than the combined effect of giving up flying, becoming vegetarian, and switching to a renewable energy provider.

While it won’t always be possible, or advisable, to switch your pension fund, the research does highlight the significant role our money can play in helping the environment.

Film writer and director Richard Curtis, co-founder of Make My Money Matter, has said that “our pensions are the most powerful weapon we have to help protect the planet […] We need the entire UK pensions industry to go green – making their default funds more sustainable so all savers can have a pension to be proud of.”

But your pension isn’t the only way you and your money can go greener.

Moving your investments into ESG funds could have a substantial impact too

Back in June, we looked at the “Greta effect” and changing attitudes to ESG and responsible investing, and highlighted how ESG has gone mainstream.

This move has been caused by a combination of increased choice, good returns, and a sustained and increased focus on ESG issues.

You’ll need to think about which factor – environmental, social or governance – means the most to you. You might opt for a fund that refuses to invest in fossil fuels or one that pays its staff the living wage and has demonstrated equality across its board.

Remember that you might struggle to find an investment that exactly matches your priorities in these areas and the weighting of each. Some compromise may be needed.

If you are keen to help the UK meet its commitments on carbon emissions, the new NS&I green bond might be worth considering.

The product, launched in October, is due to provide at least £15 billion for green projects designed to help the UK transition to renewable energy and an eco-friendlier transport network as the government works toward net-zero carbon emissions by 2050.

The decisions you make about your money can make an enormous difference

With the climate crisis firmly at the top of the political agenda, the decisions you make about your money can make a dramatic difference.

As Nick Robins of the London School of Economics told Money Marketing, “carbon emissions linked to the consumption of a financial service such as a pension can be compared with other parts of a person’s lifestyle, such as diet, housing and transport […] Shifting investment is an important way of sending signals to companies to accelerate action to support the net-zero transition.”

As ESG continues to be a mainstream investment choice – and other bodies take note – the actions consumers take will become increasingly important.

Get in touch

At HDA, we want your long-term financial dreams to become a reality and we can help you to do that while aligning your financial decisions with your values.

If you’d like to discuss ESG investments or the possibility of “greening” your pension, please get in touch. Email or call 01242 514563.

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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