Why you need to ensure your pension scheme is ESG-friendly

Reward and benefit providers must take note of pension scheme investments or risk stakeholder revolt

Aside from direct payroll costs, workplace pension schemes represent the biggest employee cost to a business and for most members represent the single biggest asset that they will ever own. With so much money at stake, shouldn’t it be crucial that these ‘cash cows’ are aligned with company and individual values?

As a fund member, how do I feel about my pension being invested in a way that is against my personal values? Maybe I’m doing everything I can to help tackle climate change, I might even think of myself as an activist.

And yet, my pension pot is likely to be helping finance 23 tonnes of carbon emissions every year – the equivalent of burning over 1,000 coal fires a year or running nine family cars. Surely this not what I really want?

Pension investment could be undoing your green dream

Or as a business, you’re making headway on the sustainability front. Changing business processes and practices to really make a difference. However, one of the biggest bills you’re paying every month could be creating more environmental damage than the business itself – effectively undoing all your good work.

Simply multiply the 23 tonnes figure by the number of employees and you’ve a rough estimate of the impact your workplace pension scheme could be having on climate change.

And yet, just like business practices, the power to change this scenario lies in your hands – wouldn’t shareholders expect a change?

The problem is that pension investments have historically been something that someone else worries about and stakeholders have judged them purely on investment performance. Just like pension contributions, investments are one of the main ingredients to achieving good member retirement outcomes – in other words their purpose is to grow the pot so that people have the best chance to retire comfortably.

But should this be their sole purpose?

Investments can do good too

Investing responsibly doesn’t have to mean sacrificing returns – it’s possible that pension investments can do good for the world and achieve good investment returns. After all, aren’t those businesses that are transitioning to a new, more sustainable world the profit makers of the future? With the whole world on the path to net zero, it’s a binary decision – do your pension investments do good or bad in the world?

As the world continues to transition to a more sustainable future the lid is being lifted on all the hidden polluters, including pension schemes. And the more the lid is lifted, the more stakeholders are calling for change. Most people were oblivious to the 23 tonnes figure, but more and more people, including your employees who are the main stakeholders, are starting to understand the issue and they want their employers to make a change.

At some point, change is going to be forced. Recently we’ve had the first glimpse of the warmer world the scientists have been warning us about – we all need to act now. And if you’re still not convinced take a look at some stats from our own recent research:

69% of employees are concerned that their company pension could be investing in businesses that are contributing to the climate crisis.
88% of employees want their employer to take action to address this.
62% of employees would engage more with their pension if it was making a positive impact on climate change.
62% of employees would engage more with their pension if they felt their money was doing good.

The biggest stakeholders, your employees, are calling for change. It’s time to listen.