Green Your Pension

Ethical finance: Your pension could help fight climate change and make the world a better place

A recent report found that investing in fossil-fuel companies means firms could lose money by missing out on growth in clean-energy investments, writes Chris Tait.

When people are asked about investors, the first thought for many is the traders in London, Edinburgh or New York who buy and sell shares every day. But every individual with a pension is an investor, even though they may not necessarily think of themselves as one.

Following the roll-out of the UK’s automatic pension enrolment scheme between 2012 and 2018, workplace pension participation rose by eight million to 18.7 million amongst eligible employees (amounting to 87 per cent). And that means more people than ever have the potential to use their pension to make a positive difference.

Ethical finance, or responsible investment, is a fairer system of financial management that aims to combine profit with better outcomes for people and the planet. It is about doing good without compromising your financial position.

The Ethical Finance Hub in Edinburgh, launched in 2016 with the help of Scottish Government funding and now part of the Global Ethical Finance Initiative, was set up to champion this approach.

With the climate crisis finally shooting up the global agenda and the economic fall-out from the coronavirus pandemic, our work is now even more important.

Today’s generation of consumers increasingly believe that investment decisions should reflect the issues they care about, such as the environment.

Research we carried out last year found that two-thirds of Scots thought it was important for financial institutions to consider ethical, environmental and social issues when making investments. It’s highly likely that figure is even higher now. But the same study found that only 13 per cent of Scots who have a pension actively chose their own investment portfolio. And more recent polling has found that nearly three-quarters of Scots either do not believe or do not know whether their pension is invested in line with their values.

There is an urgent need for systemic change, which is why we are seeking to raise awareness and inspire action by individuals, employers and pension funds as part of the Global Ethical Finance Initiative’s wider campaign, “Path to Cop 26”, refering to the next United Nations’ climate summit in Glasgow. Many individual employees are unaware of the positive impact they could have through closer management of their own pensions.

Last month, Comic Relief founder and filmmaker Richard Curtis launched the Make My Money Matter campaign, which aims to build a movement of individuals demanding a pension they can be proud of.

From tobacco to fossil fuels, gambling to deforestation, pension funds have invested trillions on our behalf without enough people being asked if this is how they want their money spent.

Every pension holder can check how their money is being invested, either through their provider or their employer. For some with private pensions, they can instantly change their portfolio. It is harder for many employees to demand change, but a greater shift towards personal demand for ethical finance will encourage pension providers to respond.

A growing number of organisations are already aligning their pensions with their values. Many understand that disclosing how the money invested is supporting the planet works for the pension providers, employers and their members. And it makes financial sense as well. A recent report found that investing in fossil-fuel companies means firms could lose money by missing out on growth in clean-energy investments.

Encouragingly, over 20 organisations have already joined the Make My Money Matter campaign, including Triodos Bank, BNP Paribas (UK) and Ecotricity.

But it’s not only corporations that must change – the public sector must take action too.

In England, the Environment Agency Pension Fund – one of the UK’s largest local government pension schemes – has signed up to the Make My Money Matter campaign.

We urge public sector pension schemes in Scotland to also join and to commit to investing in line with the Scottish Government’s ambitions to create a greener, fairer and healthier country by 2032.

We can be proud of what we have already achieved in Scotland.

Our £9.5 billion of responsible investment funds represent 11 per cent of the UK’s responsible investment market, compared to Scotland’s seven per cent share of the total UK investment market.

And a report we published earlier this year found rapid growth in the Scottish investment sector of around 27 per cent per year since 2004, mainly in climate, impact and environmental, social and governance (ESG) funds.

But there is an extraordinary opportunity ahead of us with the UN’s Cop 26 climate change summit coming to Glasgow next year.

Not only will that event hopefully deliver global change, it can leave a lasting legacy here in Scotland too.

We must not miss this opportunity to deliver for future generations.

Our “Path to Cop 26” campaign is an opportunity for financial institutions to demonstrate their commitment to climate action.

Scotland is punching above its weight and is already a centre of excellence in responsible investing.

There is now an unrivalled opportunity to apply that approach to our pensions, so that they work for people and the planet.

Chris Tait is project manager of the Ethical Finance Hub