Why you should push for an ethical pension/retirement for your workforce

What’s happening with our pensions? ‍

The total value of the UK’s Pension Schemes’ Assets Under Management (AUM) equaled £2.7 trillion in 2019. MMMM calculated that this enabled more CO2 than the entire UK carbon footprint in that year. Yikes.

So a lot of the money we’re saving for our future is actually endangering it -- your pension could be investing in anything from fossil fuels to tobacco, exploitation to extraction.

The good news is there’s something that you as a business leader can do. MMMM outlines what that is perfectly, so I’m not going to reinvent the wheel. Here’s what they suggest:

Ask your pension provider to lead on responsible investment. Quiz them on how they’ll achieve net zero emissions, how they’ll increase their positive impact, and use their shareholder rights to get companies to perform better. I recommend setting a deadline for when you need to see these commitments by, and if they don’t meet it then initiate the move to a new provider.

Empower your employees by telling them where their pension money is going, and engaging in a dialogue about where it could go in the long term. Encourage them to put pressure on your provider too.

Many pension providers have already heard this call to arms. In July, 14 UK pension funds -- which collectively manage £268 billion between them -- committed to halving their portfolio emissions by 2030 and reaching net-zero by 2050 (Edie). They joined the organisations that MMMM’s #NetZeroHero campaign had already got to: PensionBee, Scottish Widows, Nest, Aegon, Phoenix Group and AVIVA.

Of course, while these are major wins, there’s still work to do. According to MMMM, 70% of leading pension funds are yet to commit to robust climate targets.

What is an ‘ethical pension’?

With no legislation or proper guidance in place, there isn’t a hard-and-fast definition on what constitutes an ethical pension. This leaves the industry vulnerable to spin and greenwashing.

If you’re setting up a pension scheme for your workforce, I recommend using Good With Money’s isitgreen platform to guide you. Their Good Guide to Pensions is also a fantastic resource, if you’re keen to gain a deeper understanding of how the whole thing works.

Do ethical pensions perform worse than other funds?

There’s a myth that green pensions don’t perform as well as traditional pensions, and it’s a big part of the reason employers are nervous to divest from traditional investment routes. These nerves are understandable; when making choices about your employees’ pensions, it’s literally their future you’re dealing with!

The thing is, it’s simply not true. In fact, amongst pension schemes that offer an ethical option, the green pensions tend to do better than their non-ethical funds (Which and FT).

Bearing in mind that pensions are long-term investments, and that we now have a global consensus around the need to limit global warming to 1.5 degrees, do fossil fuels really sound like a sound long-term investment anyway?

What is the Green Pensions Charter?

Spearheaded by the MMMM campaign, the Green Pensions Charter is a way for businesses to demonstrate their intention to align their pensions with net zero targets. By signing onto the Charter, a company commits to:

Calling on the pensions industry to agree net zero targets for all investments.
Engaging with their trustees and pension providers to explore how they can align their staff pension scheme to net zero before 2050.

And you'd be in good company too—so far, over 80 leading organisations have made the pledge, including the likes of EY, IKEA, Tesco, Oxfam and more.

The green pension movement is picking up steam, but we need everyone on board to catalyse transformative change across the industry. Signing onto the Green Pensions Charter is a way of signalling your commitment to truly investing in your employees' retirement, and safeguarding the future for all.

How to responsibly balance your 401(k)

If you are making contributions to an employer 401(k) plan, chances are that money will be invested in mutual funds, index funds, or target date funds. Less than 3% of 401(k) funds are invested in ESG. This means that your money can be with a company that doesn't align with your values.

The funds available to you will be limited to your plan administrator's options. A way to combat this would be to get others interested in ESG funds to contact Human Resources together and see what is available/what can be done.

All in all, saving for retirement is crucial and it is worth being aware that money that is invested may potentially clash with values or purpose-driven investing.