Nowadays, more people are choosing a responsible investment strategy. There are various ways to make a difference in matters like climate change or being more socially responsible. But did you know that as well as making conscious changes to your lifestyle, you can also do so by investing positively through your pension? We consider the positive impact an ethical pension can have on larger issues at hand across various areas of society.

Known as ESG investments, you can choose funds that contribute positively to environmental, social and governance challenges. Investing in this way isn’t new; it’s been a growing trend over the past decade, as people are becoming more socially and environmentally aware. Due to increased subsidies and tax relief available for companies tackling such issues, investments have also become more attractive in terms of returns.

Ethical pensions

57% want their pension to be invested responsibly to help tackle climate change
Royal London

Along with the pandemic, major social and economic events have brought inequality to the forefront. In addition, a seismic shift in people’s attitudes has resulted in a conscious desire to invest more responsibly. According to Royal London’s research, consumers have a good understanding of the actions they feel make a difference, and people’s current thinking when it comes to tackling climate change issues shows that:

• 52% believe in reducing single-use plastics
• 40% believe in using less electricity
• 34% believe in taking fewer flights

However, two in five people simply don’t know where to start with investing responsibly.

Only 7% consider how their pensions are being invested
Royal London

So whilst people are making conscious changes to their lifestyle to help tackle climate change, only a few have considered their pension. When compared to the fact that 64% of people expect pension providers to take action against climate change, there is a big gap in terms of awareness. And yet the power of ethical pension funds should not be overlooked.

Would you like a more ethical pension, but you simply don’t know how or where to start? When it comes to responsible investing, it’s not as complicated as you may think. Nowadays, there is a wide range of choices with fund managers looking after various responsible funds. There is also a lot of pressure on companies and industries to operate more positively, both socially and environmentally.

Whether it’s a decarbonisation plan or a commitment to social initiatives, there are funds available to invest in, which will help you make positive changes to tackle important issues. Likewise, you can stop investing in unethical funds, known as “sin stocks”, which include things like tobacco, alcohol and gambling. For more insights on ethical investments, read our blog 10 Myths of Ethical Investing.

The different types of responsible investments

Before you reassess your investment strategy, what are your motivations? There are key differences between various types of responsible investing and here are four definitions:

• Ethical – Do you want to avoid companies or industries that cause harm to the planet or people?
• Responsible – Do you want to invest in a strategy that aims to deliver positive change and a positive return?
• Sustainable – Do you want to invest in businesses that deliver solutions to environmental or social challenges?
• Impact – Do you want a measurable impact in terms of environmental and social gains and a financial return?

It can be a mix of all of these different approaches for many people. Reflect on your interests and motivations. What are your feelings on certain world issues? Do you regularly donate to certain charities? Perhaps you have a planned approach to your weekly shopping, such as buying Fairtrade products? Or maybe you just want to know that you are investing in companies that promote good practices regarding the environment, socially and with their governance (ESG). These types of factors will help you determine your preferences for responsible investing, so you can choose the right funds and make a positive impact with your ethical pension.

49% felt that better-run companies make better investments
Legal & General Investment Management

With only 11% thinking Environmental, Social and Governance (ESG) investing would result in worse performance, this shows the powerful impact your choice of pension investment can make with addressing climate change, promoting a diverse workforce, and treating employees fairly.

Start with a conversation with our financial planning team. First, we will review your existing pension and check the funds relating to your pension plan. Then, we will talk through your ethical interests and motivations to decide on a suitable investment strategy for your pension. Together, we can tailor a more positive approach to your pension planning, so you can make an impact on ESG issues.

We have a new range of ESG portfolios available, so if you want to invest more responsibly and make a positive difference with an ethical pension, get in touch to speak to our financial planners.

Sources:

Royal London: Responsible Investment report
LGIM Money Listens: The positive power of pensions
https://adviser.royallondon.com/globalassets/docs/adviser/investments/saippd0001-questions-to-ask-for-responsible-investment.pdf