Increasingly, investors are urging companies to build ESG considerations into their long-term strategy, bringing it up during engagements and using shareholder proposals to force companies to take action. Investing sustainably means putting your money to work on issues ranging from adapting to and mitigating climate change, improving working conditions and diversity, to tackling inequality.
Responsible, sustainable and environmentally friendly investing is here to stay. But, while demand is growing among all age groups, genders and income bands, some savers and investors are missing their biggest opportunity for responsible investing, which is through their pension.
We all want to make responsible choices as more of us are becoming aware of global challenges, such as environmental issues, human rights and climate change. We’re also starting to care more about how our behaviours affect the planet and society.
Recent research has identified that nearly three quarters of women aged 40 and over would divest their pension from companies with poor pay practices, led by 74% of female ‘boomers’. A majority of men of the same age group agree but younger women are split 50:50. However, many Millennials want to divest their pensions from the fossil fuels industry. Half (49%) of all age groups prefer a policy of engagement before divestment.
An overwhelming majority of older women would divest their pension from investments in companies with poor pay and governance practices. Women aged 40 and over are much more likely than men of the same age group to agree with such steps, with a slimmer 59% majority of men of the same age willing to do the same.
Within the older female age group, 74% of female ‘baby boomers’ and 73% of women belonging to ‘Generation X’ would invest less, or not at all, if they knew their pension was invested in companies that have attracted criticism for their governance and pay practices. However, younger women are split on the issue. Only half of millennial women would follow the same policy of cutting out these companies from their pensions.
Revealing clear and generational differences the findings highlight a strong contrast between the relative importance of ESG issues to older generations and the views of younger people, who are more focused on climate issues.
Millennials were more likely than any other generation to want to reduce their exposure to the fossil fuel industry, despite any potential consequences. Even if there was a resulting performance impact, 45% of Millennials would opt to divest their pension from fossil fuels. This compares to 30% of Generation X, while Baby Boomers (at just 23%) were half as likely as Millennials to divest from fossil fuels regardless of the investment outcome.
It is acknowledged that companies that act responsibly to their employees, the environment and the public have a better chance of future success than those that don’t. Investing in these companies is a logical approach financially as well as ethically.
Many pension holders understand this approach and see the value of it. In a recent survey, more than one-third of respondents said the option to invest their pension only in sustainable companies is important to them. Nearly two-thirds said having clearly branded funds for investing in environmentally and socially responsible companies is important.
The same survey suggests that pension holders feel that sustainable investing isn’t just important, but interesting. More than half of respondents said that a fund focused on clean energy and lowering carbon would make them more interested in their pension. A similar number felt that way about a zero-plastic fund.
But while pension holders feel these issues are important and interesting, that isn’t yet affecting the way they invest. Most people don’t manage their pension investments themselves, instead leaving their pension invested in the default options set by a provider chosen by their workplace. So, more than two-thirds of pension holders do not know how sustainable their pension is.
Many pension holders don’t know that they can choose their own funds, and therefore that they can choose sustainable or responsible funds. Around half are unaware of ways to ensure their pension is environmentally friendly.
Clearly, there is a large audience of individuals who would like to invest their pension more sustainably and responsibly but don’t know where to start. There are plenty of options, but without specialist experience, it can be difficult to select those that are truly responsible and environmentally friendly and will also deliver the financial return you’re seeking.
Reuters contacted 47 of Britain’s largest pension funds, with 33 saying they were not divesting from fossil fuels. Some highlighted the potential impact on returns, and their preference to engage with oil and gas companies as reasons.
Across all age groups nearly half of all adults (49%) would prefer a policy of engagement to encourage change, before divesting. It is also notable that only half of respondents were already aware of the types of investments within their workplace pensions, implying many more may not be aware of possible inconsistencies between these investments and their own beliefs.
More and more, investors want to invest sustainably: they want to combine investing for a financial return with a positive contribution to the environment, society or both. Whether you’re just curious about what options are available to you, or if you’re strongly opposed or for certain investment options, click here to schedule a no obligation initial consultation with one of our financial advisors and discuss your situation.
 Research from Legal & General Investment Management (LGIM) conducted by Watermelon Research (fieldwork): 22–29 October 2019, consisting of 1,000 interviews (online) with UK adults between the ages of 25 and 65, who have a workplace pension and work in the private sector.
Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change.
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Lawsons Equity Limited is a company registered in Malta with company number C49564 and Licenced by the Malta Financial Services Authority as Enrolled Insurance Brokers under the Insurance Intermediaries Act 2006, and to provide Investment Services under the Investment Services Act, 1994. Lawsons Equity Ltd have passported their services across the EU. To see a full list of countries click here
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