Your workplace pension is probably harming the planet

This article is part of a series called Rethinking Rewards. We’re inviting experts to question the assumptions behind some of the most common workplace perks.

When someone thinks about pensions, they rarely think about the planet. And carbon emissions aren’t usually front of mind for companies when choosing a workplace pension scheme. 

However, if the UK pensions industry was a country, it would find itself in the top 20 carbon emitters globally, according to campaign group Make My Money Matter.

Pension schemes are estimated to invest a staggering £112bn in fossil fuels, or £60 for every £1,000 invested.

Climate change is one of the biggest issues of our generation. We’re all familiar with net-zero pledges due to COP26, we understand the impact on wildlife thanks to David Attenborough, and “sustainable investing” has become a huge trend. Many investors – especially young investors – buy shares and funds that align with their beliefs, such as for their ISA or in their trading account.

But pensions are arguably being forgotten. First, most employees don’t see their pension as an investment, and therefore aren’t lobbying for green pensions. Second, employers aren’t building climate action into their pension proposition (despite thinking about sustainability in other areas of their business). And third, the pension industry needs to provide better ESG (environmental, social and corporate governance) options.

“Right now, only about 5% of leading companies mention pensions in their sustainability strategies, despite the fact almost £20bn of employees’ money is invested each year by workplace pensions schemes,” says David Hayman, campaign director of Make My Money Matter.

“Why serve vegetarian meals in a canteen if your pension is invested in factory farming? Why install renewable energy across your buildings, but continue to invest in coal? We believe pensions must become the new frontier for all organisations working to tackle the climate crisis.”

As well as helping save the planet, having a net-zero pension scheme (or one with seriously green credentials) is a powerful way to recruit staff, and engage them with saving for their future. This is especially true for the newest generation of talent, as they have been shown to be most concerned about our planet – and least interested in pensions.

Most workers ignore their pension, but if they’re given a reason to feel proud of it, this will help them understand it, view it as a valuable benefit, and potentially pay more money into it. 

Harry, an Octopus MoneyCoach client, notes: “In the last few years, I’ve become really interested in ethical investing. If I’m going to put my hard-earned money somewhere, I want it to have a positive impact.” He recently switched his pension into an ethical investment fund.

Tom McPhail, director of public affairs at pensions consultancy the lang cat, says employers must challenge pension providers and fund managers to create greener pensions. “It is important, it isn’t necessarily easy and it will take time; it has to be built into the ongoing scrutiny of any workplace pension.”

Henry Tapper, founder of pensions firm AgeWage, says it’s vital the money invested in pension schemes is used to fight the climate crisis. “It’s time we shook the pensions industry up, and asked: what are we doing with our money to make Britain, and indeed the world, a better place?”

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