18 August 2021
You may consider yourself to be a true eco-warrior, passionate about preventing global environmental disaster.
You may try to eat less meat and dairy, use public transport as much as possible, and have managed to eliminate all single-use plastics in your home.
But did you know that, even if you did all these things, it still wouldn’t be the biggest change you could make that would help to tackle climate change?
Fascinatingly, the biggest change you can make is also the easiest, and it’s simply to switch over your pension to a “green” fund.
Reduce your carbon footprint with the click of a button
Research from Make My Money Matter (MMMM), Aviva, and Route2 shows that switching your retirement pot to exclusively green investments can massively reduce your carbon footprint.
The logic is simple: by exclusively investing your money in companies that meet the environmental criteria of the fund manager, you no longer contribute to the carbon footprints of businesses that don’t meet the same standards.
The results of this analysis are quite remarkable. They found that being invested in a green pension can be 21 times more effective in fighting climate change than the combined efforts of becoming vegetarian, switching to a renewable energy provider, and not flying on planes.
Switching to a green fund was also found to be more effective than some of the other most popular ways to reduce your carbon footprint, including being: 57 times more effective than going vegan; 40 times more effective than switching to a renewable energy provider; and 20 times more effective than driving an electric car.
In real terms of reducing carbon, the report showed that moving a £30,000 pension pot from traditional investments to green investments would save 19 tonnes of carbon a year.
For larger pots, the effects compound, becoming even more impactful. Pots of at least £100,000 have the potential to save up to 64 tonnes in carbon each year – equivalent to roughly nine years’ worth of the average UK resident’s footprint.
Switching to a green pension can produce good returns
As well as the benefits for the planet, switching to a green pension fund can be good for your wallet, too. Over the course of the last decade, many ethical funds have outperformed their traditional counterparts when it comes to investment returns.
According to Morningstar data, 6 out of 10 sustainable funds outperformed their traditional counterparts in the 10 years to 2019, although please note that past performance is no guarantee of future performance.
Across 745 Europe-based sustainable funds, the ethical option was more likely to have performed better over time frames of one, three, five, and 10 years.
Similarly, analysis by investment provider Fidelity from November 2020 found that stocks for companies stocks at the top of the fund house’s ESG rating scale outperformed those with weaker ratings in every month from January to September, apart from April.
There is an important distinction to make here between “ethical” and “green” funds. “Green” companies specifically target solving environmental issues, whether that’s by building solar panels to sell, or simply committing to being a net-zero emissions business.
“Ethical” is a broader term for companies that seek to have a positive social impact. This could include green companies but could also involves businesses that have strong social values, such as anti-slavery commitments, or that actively try to increase diversity at a corporate level.
However, as green pensions invest in ethical funds more broadly, the terms can essentially be used interchangeably.
Speak to a planner
Of course, before you make any decisions or changes to your pension, it’s important that you take financial advice.
Any changes you make could have a marked impact on your retirement income. A financial planner can look at your personal circumstances and calculate whether it’s a sensible fiscal decision to switch your pension fund.
Get in touch
At Depledge, we can help you work out whether a green pension could provide you with the right level of return that you need, while saving the environment in the process.
If you’d like to discuss your pension and retirement planning, please get in touch. Email email@example.com or call 0161 8080200.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investment (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.