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ESG Investments: The future of pension planning?

Environmental, Social, and Corporate Governance (ESG) have taken hold of the financial services industry for some time now. Companies across all sectors are waking up to public pressure and implementing the various ways in which they can change to make their business more sustainable. 

This approach to business operations isn’t new. In fact, campaigns calling for major financial institutions to incorporate ESG first gained prominence in the mid-noughties. Since then, the movement has gained momentum, with countless reports and investigations supporting its benefits. 

Indeed, when considering their investments, it appears the British public are becoming more conscious about where their money is going and the impacts that it has on society. 

Clear interest in ESG

According to recent My Pension Expert research, over two-fifths (43%) of UK adults aged 40 and over understand what ESG means, highlighting an increasing awareness of the importance of sustainability principles in investing. 

Naturally, as more people have become aware of ESG, there has been a spike in interest in government policies to promote ESG practices within financial services. My Pension Expert found that more than two in five (43%) support the UK government in placing pressure on pension schemes to transition away from investments contributing to deforestation. Over a third (36%) also support government policies which force pension schemes to mitigate climate change. 

Newly garnered interest in these policies suggests there is support for government action towards promoting greener practices within pension schemes.

Yet, this is somewhat contradicted when looking at the number of Britons that have factored ESG into their retirement investment strategy – just 15% of adults aged 40 and over. Meanwhile, only 12% stated that they conduct thorough due diligence to ensure their pension investments are in keeping with their ESG preferences.

The question then is, why aren’t individuals eager to incorporate ESG into their own retirement plans? 

Lack of information 

As the saying goes, information is key. Which is wherein the problem lies. 

My Pension Expert’s research found that almost half (45%) of pension planners would like pension schemes to make ESG information more accessible. The insufficient information at hand for planners to conduct thorough research and make informed decisions about sustainable investments may explain the disconnect between positive attitudes to ESG and the lack of uptake in retirement strategies. 

Moreover, a lack of information could lead to confusion and misrepresentations of ESG. While awareness of the concept has increased, much of this is focused on the environmental aspects. Meaning many do not have the same level of understanding when considering the social and corporate governance aspects. 

As such the government and regulatory bodies must work together to establish a policy of transparency ensuring that pension providers and schemes publish clear and accurate information regarding ESG practices. This should be conducted by making information easily accessible to consumers on a business’s website. Accordingly, pension planners can find accurate information allowing them to consider whether the provider’s strategy is in keeping with their sustainable investing goals. 

Of course, independent financial advisers will also play a key role in helping planners to better understand ESG and guide clients towards a strategy that falls in line with the individuals’ personal preferences. For example, our team at My Pension Expert have the knowledge and expertise to identify the schemes or investments which would suit an individual’s principles, whilst ensuring they achieve the best retirement outcome possible. 

Amplified awareness of ESG and enthusiasm for government policies that embrace it are heartening. However, as our research highlights, there is still plenty of work to be done when it comes to encouraging pension planners to adopt ESG into their own strategies. Regulatory changes will be crucial. Likewise, improving access to independent advice will put planners in a better position to make decisions on sustainable strategies. Through these changes, planners can acquire a retirement strategy that adheres to their principles, whilst securing them the best retirement income.