Top five facts every employee should know about ESG and workplace pensions

The key to engaging employees with pensions is to get them to feel connected to them. For older employees nearer to retirement, this is an easier task, but for younger employees who might be 30 or 40 years away from retirement, this can be a lot more difficult. With other more pressing financial concerns, like getting on the housing ladder, pensions are the last thing on their mind.

We need to create a sense of relevance in the here and now, and this is where environmental, social and corporate governance (ESG) factors (essentially ethical and responsible investing) really come into play. Our own Pension funds and the climate crisis (March 2021) research shows that over 84% of employees are concerned about climate change, and this rises to more than 88% of under 25s. It’s an issue for us all today and pensions have a part to play.

Top fact one – your pension ultimately invests in companies

It might sound obvious but it’s a fact that is hidden by all the other noise around pensions.

I bet, if you asked people where their pension is invested, most will reply with the name of the company they work for, the pension provider or for the more engaged, perhaps the fund or funds they are invested in.

Very few, at least without prompting, will be able to tell you the names of some of the companies that they are indirectly invested in. More to the point, many people don’t make the link between their pension and the fact that ultimately their investments reside in company shares.

It’s just something that people in general don’t think about. It’s a symptom of inertia.

But making sure that employees understand this point, can really make a difference to engagement rates. It’s the key to forming a connection to the benefit of pensions today, regardless of how far away retirement is.

Top fact two – your pension could be invested in companies that are damaging the environment

Nearly half (49.78%) of employees we surveyed didn’t know that their pension could be invested in businesses that cause harm to the environment and contribute to climate change. I suppose based on our first top fact, this shouldn’t be surprising – if you don’t understand that your pension is invested in company shares, how could you know that some of these companies might not be that environmentally conscious!

But most employees are concerned about environmental issues – over 84% told us they are concerned about climate change and, in all likelihood, they are doing their bit to help tackle this issue like recycling or cycling not driving where possible.

But unfortunately, any good they’re achieving is being inadvertently undone by the damage their own pension creates, and it’s massive, 23 tonnes massive.

Top fact 3 – your pension is contributing as much CO2 each year as nine family cars or 1,100 coal fires

The average UK pension is helping to pay for 23 tonnes of carbon emissions each year. To mitigate this amount of carbon, you would need to recycle for 19 years or plant 30 acres of forest – it’s a massive amount and yet 99.5% of employees are unaware.

But the message is getting out there and once they do know the extent of the issue, employees want their employers to act – nearly 88% told us their employer should be taking action. They want their employers to either give them the option to invest in companies that don’t contribute to climate change or move to a pension provider that is actively making a positive impact on climate change.

And there are providers out there making a difference, for instance Cushon offers the world’s first Net Zero Now pension.

Top fact four – you can influence the way the companies their pensions invest in are run

It’s true that fund managers are the ones who decide the companies pensions are ultimately invested in, and they’re also the ones who hold the right to vote at shareholder meetings.

But this doesn’t mean that employees don’t have a say.

Through voting technology, employees can vote on how companies deal with ethical issues such as gender equality, animal welfare, as well as environmental issues such as climate change. Their votes collectively influence the way the fund managers vote at shareholder meetings so they can have their voice heard.

Over 62% of employees told us that they want the opportunity to have a say in how the companies their pension is invested in are run, and that’s why we launched this functionality.

Top fact five – your pension can make a difference today not just at retirement

This takes us back to the opening point, which is that people need a reason to engage with their pension and that reason can’t be 30 or 40 years away. There are trillions of pounds invested in UK pensions and billions more are being invested every year. If every single pension member in the UK was invested in a Net Zero Now pension, and had voting functionality, imagine the difference that would make to the planet!

Knowing that your pension is doing good for the planet as well as your own future, gives you a reason to engage with your pension no matter how far away from retirement you are. It makes you connected, or, in the words of Baroness Altmann, “it makes you proud of your pension”.

As the UN Climate Change Conference (COP26) approaches, awareness levels around these issues will increase and employees are going to want to know what their employers are doing to help. If you want to know more, download our Pension funds and the climate crisis paper.

The author is Steve Watson, head of proposition at Cushon.

This article is provided by Cushon.