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Does it pay to make ethical pension investments?

Over the past decade, climate change has grown in prominence within the political sphere, with global leaders setting strict emissions targets in a bid to slow down the impact of global warming. Owing to this, businesses have also been encouraged to consider their impact on the environment seriously, and limit any negative implications where plausible.

As such, environmental awareness and ethical behaviours have grown amongst average consumers, with many evaluating their personal impact on the environment. This has caused many to direct their attention towards their financial behaviours – most notably, savers are increasingly realising that they can use their pension investments as a force for good.

Evidence certainly suggests that consumers are keen to invest their pension savings in more ethical schemes – recent research from NEST found that 71% of UK adults would opt for a fully or partially sustainable pension scheme given the choice. A further 68% of savers want their pension provider to consider their people and the planet, in addition to profits, when choosing pension investments.

Even younger generations, who are notoriously unengaged with pension savings, are keen to get more involved in ethical investments. According to a study from Aviva, an overwhelming majority (71%) of millennials expressed an interest in investing in environmental, social and government (ESG) or other ethical funds via their workplace pension scheme.

There is a clear and growing awareness of, and demand for, ethical pension investments. And whilst there are altruistic benefits to such investments, there are also potential financial benefits to consider.

The benefits of choosing ethical pension investments

There are two core benefits to ethical investing. The first, and perhaps most obvious, is that it ensures that environmental and socially responsible organisations receive the necessary cash-backing to survive in the long term, contributing to a more sustainable future.

Further to this, such investments also present opportunities for valuable financial gains. Indeed, the UK Government has recently announced plans to make pension schemes mitigate against risks related to climate change – making it the first G7 economy to do so. The government believes this approach will make it possible to identify best practices amongst pension portfolio managers. Such measures would suggest that pension investments are likely to be safer with firms that are prepared for climate change and similar environmental risks in the long term.

While seeking financial advice is, of course, necessary before making any major investment decisions, be they ethical or otherwise, it is apparent that there are potential gains to be enjoyed when pension investments are made morally. The question now is whether the pension industry is poised to meet this demand.

A force for change? 

With more and more consumers becoming increasingly conscious about mindful investment, one would expect more financial advisers to incorporate ‘greener investments’ into their tailored advice, where appropriate.

Indeed, at My Pension Expert, we have noticed an influx of clients asking our independent financial advisers about the wider impact of their pension investments on the environment. As such, our advisers have been sure to factor in clients’ concerns to ensure that any recommendations are appropriately ethical, as well as suiting a client’s financial requirements.

However, the onus is not just on advisers to make ethical investments. Indeed, pension providers and fund managers must also rise to meet the demand from savers and ensure that funds are placed with companies who have sustainability and financial responsibility in mind. If they do not, they will likely face issues, not just from investors looking to remove their funds in favour of more ethical practices but also from regulatory bodies if they fail to comply with the government’s legislation.

It is encouraging to see growing consumer demand for ethical pension investments. This more altruistic approach to investment will benefit not just the future finances of consumers but also the wider environment – contributing to a more sustainable world in which they can enjoy their hard-saved pension. And with the government supporting this move via new legislation, one would anticipate that many pension providers and fund managers will soon follow suit.