3 powerful actions you can take to tackle global warming using your pension

Ahead of the United Nations Climate Change Conference 2021, the BBC revealed a dire scientific report that warns of increasingly extreme heatwaves, droughts and floods during the next decade.

The BBC’s article quotes UN secretary general Antonio Guterres as saying the report is “code red for humanity”.

There was some good news though, with scientists adding that a catastrophe could be avoided if the world acts fast to tackle climate change. That said, what scientists behind the report may not know is that your pension could be one of the most effective ways to take action against global warming.

That’s according to an article in Pension Age, which reveals research that suggests switching from a traditional pension to a sustainable one may be 21 times more effective in cutting your carbon footprint than not flying.

The study, carried out by Make My Money Matter, Aviva and Route2, also found a sustainable pension could be 20 times more effective in tackling climate change than switching to an electric car.

Read on to discover more about the research, how you could use your pension to tackle climate change and how a financial planner could help. Before we do, we need to look at what a sustainable investment is.

Today, sustainable investments are known as ESG funds

ESG stands for “Environmental, Social and Governance”, which are the elements used to measure the sustainability and societal impact of a company. The criteria for ESG funds include:

• Environment: what is a company’s energy use, waste, pollution and natural resource conservation?
• Social: does a company work with suppliers that hold the same values as it and do working conditions show a high regard for employees?
• Governance: does the company provide accurate and transparent accounting methods and can stockholders vote on important issues?

While you may be interested in the social aspects of your investment, speak with a financial planner as they can ensure the investment meets your key aims, if for example, it’s reducing climate change.

Moving to ESG funds could significantly reduce your pension’s carbon footprint

According to researchers behind Make My Money Matter’s analysis, who said retirement funds could be vital in helping the UK reduce its impact on the climate.

As the study points out, moving an average-sized traditional pension pot of £30,000 to a more sustainable ESG option could save 19 tonnes of carbon a year. This makes it 57 times more effective in tackling climate change than switching to a vegan diet and 40 times more effective than switching to a renewable energy provider.

The Pension Age article also reports that if your pension is worth around £100,000, you could save up to 64 tonnes of carbon by switching to an ESG fund. This is nine years’ worth of a British citizen’s average carbon footprint.

There are 3 actions you could take to green your pension

If you want to consider using your pension to help tackle climate change, there are three ways to do it.

Ask for clarity

Ask your pension provider – whether it’s a workplace or private pension scheme – about the funds they invest your pension in.

You may be able to confirm this via your pension provider’s website or by contacting them directly. Once you have the information ask them about ESG funds that may be available to you.

Please remember that switching your pension to different investments should not be taken lightly. Always speak with a financial planner to ensure doing so is right for you, and whether there are alternatives that are better suited.

Lobby

If your pension provider or employer does not offer ESG funds, or has a limited range that you do not feel meets your needs, lobby them to provide alternatives you could switch to. The more people who do this, the more likely providers will respond to demand.

Alternatively, speak with a financial planner to see if they can suggest ESG funds that meet your aims.

Consolidate

One of the most effective ways to reduce your “financial carbon footprint” could be to merge all your pension pots and move them to a more sustainable option.

According to a recent article in the Telegraph, most people in Britain switch jobs 11 times so typically have many different pension pots. Bringing them into one larger sustainable pot may help the planet and also help you.

This is because the growth on a larger pension could be greater than on lots of smaller pots, potentially providing you with more money to retire with. Always speak with a financial planner to confirm whether this could be true for you, and whether merging your pensions is the best thing to do.

Get in touch

If you would like to discuss investing your pension in ESG funds to help the climate, or would like to investigate putting your wealth into ethical or environmentally friendly investments, please email us on info@harperlees.co.uk or call on 01277 350560.

You may also want to read our Investing with a Social Conscience document, which provides useful information about responsible investments and what you may need to consider.

Please note

This article is for information only. Please do not act based on anything you might read in this article. I base all contents on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.