Why pension schemes should welcome responsible investing

Written by Odi Shonga
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Individual change is good, but institutional change is better. To tackle the most pressing issues our planet faces, we need big institutions, like pension schemes, to move with us. Pensions money accounts for half of all investments in the UK. We could make a difference if our savings were automatically invested responsibly – in companies that have pro-sustainability values, look after their workers, and look after the environment.

The 2019 UN Climate Change Summit saw Greta Thunberg deliver a crystal clear and chilling message to those who wield power: “You say you hear us and that you understand the urgency. But no matter how sad and angry I am, I do not want to believe that. Because if you really understood the situation and still kept on failing to act, then you would be evil.”

If the bigger pension schemes made responsible investing a priority, we would move closer to acting with the urgency Greta Thunberg correctly demands.  The case for putting responsible investing first can no longer be ignored. Here are 3 reasons why trustees should consider taking bolder responsible investment steps.

  1. People will save more if they believe their money will do good

For most people, retirement income depends largely on how much we saved while we were working. So, it makes sense to ask: how do we get people to save more? Franklin Templeton and Adoreboard surveyed 2500 people to answer this and other questions. They found that “45% of respondents would be motivated to increase their own contributions if their pension incorporated responsible investing”. Young people (22-38 year olds) in particular would save 20% more than they currently do if they believed in the positive impact of their pound. When we went out and talked to people about responsible investing, we found the same thing (see our video). People care about how their savings are invested.

Imagine having that card up your sleeve in your communications to members. “Your money contributes to the causes you care about, such as investing in renewable energy and building affordable housing. The more you save, the more good can be done in the world. All while saving for your retirement.” It’s engagement gold.

  1. Responsible investing does just as well as conventional investing

Not only do people care, responsible investing needn’t mean abandoning your fiduciary duty to your stakeholders. The research and data company MorningStar tells us that there is “overwhelming evidence” that sustainable investing performs as well as conventional investing. There is no need to fear responsible investing.

  1. The political landscape is changing

We’ve already seen the world’s nations come together to commit themselves to improving the climate with the Paris Accords. Lawmakers and pension regulators will continue to follow developments like these, and oblige schemes to take non-traditional investment factors seriously. To keep ahead of the curve and shore up against future regulation, trustees should integrate responsible investing into their default funds now.


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