Want to reduce your carbon footprint? An ethical pension could be more effective than stopping flying

It can be overwhelming to think about the environmental issues that future generations may have to contend with, and what the best ways are to help them.

There is no shortage of eco-friendly lifestyle suggestions. From eating locally sourced food and switching to a plant-based diet to selling your car and stopping flying, deciding which are the most effective and realistic changes can be confusing.

But what if one of the most impactful actions you could take didn’t necessitate any change to your lifestyle?

UK pension funds have an estimated value of around £2.9 trillion, and a sum of money of that quantity can make a huge difference wherever invested.

Read on to find out how an ethical pension could be more environmentally friendly than many other lifestyle adjustments, including stopping flying.

Flying can increase your carbon footprint

Flying is one of the most environmentally damaging activities you can do.

The BBC reports that a return flight from London to California emits roughly 5.5 tonnes of carbon dioxide equivalent per passenger. That is more than double the emissions produced by the average family car in a whole year.

Even a short-haul return flight from London to Berlin emits around 0.6 tonnes of CO2 equivalent per passenger, which is three times the emissions saved from a year of recycling.

Despite advances in fuel efficiency gradually reducing emissions, they are not keeping pace with the rise in passenger numbers, which are set to double over the next 20 years.

Although flying is extremely detrimental to your carbon footprint, you may find that you need to fly to visit family and friends, or for work, or that holidays abroad are simply a lifestyle choice you don’t want to sacrifice.

So, you may want to explore alternative ways to reduce your carbon footprint, such as switching to an ethical pension.

An ethical pension could reduce your carbon footprint more than stopping flying

Many people with pensions don’t know where their provider invests their money.

Climate Action reports that UK pension schemes have invested more than £88 billion into the fossil fuel industry, which works out to around £3,096 for each pension holder.

Ethical pensions ensure your contributions don’t go to causes that could be socially or environmentally harmful, so they tend to avoid investing in sectors such as fossil fuels, tobacco, gambling, and the arms industry.

ITV reports that when it comes to reducing your carbon footprint, having an ethical pension is 21 times more effective than a combination of becoming vegetarian, giving up flying, and switching energy providers.

Indeed, if UK pension holders all switched to ethical pensions, it could save up to 386 million tonnes of carbon emissions each year. That’s the equivalent of 11 return flights from London to New York for each pension holder!

Furthermore, the Financial Times found that 6 out of 10 sustainable funds delivered higher returns than conventional funds over a decade-long period. So, opting for an ethical pension not only doesn’t compromise your returns but might even enhance them.

3 factors to consider before switching to an ethical pension

Before moving your pension fund into more ethical and green investments, there are a few factors you may want to consider to ensure your money is best invested with regard to ethics, risks, and returns.

1. Consider what is ethical to you

When aligning your pension with your values, there are two key questions to consider:

• Do you want to exclude companies that negatively contribute to the environment?
• Or do you want to invest in a way that works and engages with these companies to push them to clean up their practices?

The first option entails excluding investing in companies either built on activity that is harmful to the environment, such as fossil fuel suppliers or airline companies, or businesses that are known for their poor sustainable or ethical practices.

The second option involves investing in companies that may engage in typically non-ethical practices, but that your pension provider works with to encourage them to reform and put them on a more sustainable trajectory.

2. Try to keep your portfolio diversified

When making ethical investments, it is important to ensure you diversify your portfolio across different sectors or regions.

Diversifying your pension investments can help to spread risk across various assets, mitigating the impact of market fluctuations.

So, while you may want to invest in certain ethical sectors, such as renewable energy, you might want to also consider investing in businesses from other sectors that have a good reputation for engaging in ethical practices.

3. Watch out for greenwashing

Greenwashing is a PR tactic used by some companies that makes them appear more environmentally friendly than they are.

Greenwashing is deceptive by its nature and can be difficult to detect. Your pension provider may not realise that some of the so-called ethical companies they invest in are guilty of it.

We undertake thorough research into the businesses your pension provider invests in to ensure their practices are in keeping with your principles.

It’s sensible to consult a financial planner before changing the way your pension is invested

Before moving your pension investments, we recommend a discussion with your financial planner.

They can work alongside you to align your pension portfolio with your principles and values, ensuring that your financial decisions are in harmony with your ethics.

If you would like to discuss ethical pensions and how your investments can make a difference, get in touch.

Email us at info@harperlees.co.uk or call 01277 350560. We’d be very happy to help.

Please note

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

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.

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.