Do green pensions matter?
With many companies undermining their own sustainability progress by not accounting for the carbon output of their pension scheme, we’re calling for companies to include pensions in their sustainability strategies.
A lot of emphasis is put on individual behaviour in an effort to reduce the UK’s carbon footprint. People are taking action like cutting down on their meat consumption and reducing the amount that they fly in order to live in a more sustainable way. However, there is one big, carbon-emitting factor that affects all of us but often gets overlooked, and that is the UK’s pensions. In fact, research shows that making a pension ‘green’ is 21 times more effective at cutting an individual’s carbon footprint than adopting a vegetarian diet, changing their energy supplier and giving up flying combined.
And while some highly engaged individuals may know exactly how their pensions are invested, they are not the norm. Most savers rely on their employer or pension fund manager to make good choices on their behalf.
How a pension is invested can play a big part in a company’s carbon output. But, as research conducted by Scottish Widows, the Make My Money Matter campaign, and sustainability consultancy Route2 shows, the pension schemes of the UK’s largest companies could be responsible for seven times more emissions than those caused through their own operations in the UK.
However, these huge figures are often missed out of businesses sustainability reporting and ESG strategies, meaning that companies don’t have the full picture when it comes to their own climate credentials.
Taking stock of how pensions have been invested is an effective first step for companies to not only lower their carbon output, but also to create a better future for the UK through investment in causes as diverse as offshore windfarms through to STEM facilities at top UK universities.
More needs to be done across the whole industry to help business leaders and CEOs see these investments as an extension of their own carbon outputs. Nearly £3 trillion is invested in pensions in the UK, and by taking stock of how – and where – this is invested we can help the UK’s pensions have a positive effect on the future success of a net-zero economy. This will help to take pressure off individuals trying to make sustainable changes, and drive change at a much bigger and more effective scale.
What impact do pensions have on the UK’s carbon footprint?
Pension funds have invested trillions on the behalf on pension savers without ever asking the crucial question – do these investments create a world we want to live in? So much of pensions’ potential to do good is as yet untapped, but their investments could help drive innovation, cure disease, or even build homes and vital infrastructure.
Most companies have established initiatives to help them be greener, from investing in energy-efficient buildings to requiring robust sustainable working practices from their suppliers. However, as the Make My Money Matter report looking at the sustainability of FTSE100 companies pension schemes shows, many are undermining (or even undoing) the sustainability progress they’re making across their own operations. These pension funds currently finance seven times more carbon emissions than their own company operations, resulting in 131 million tonnes of unreported carbon each year.
Less than 10% of FTSE100 companies include pensions within their public sustainability strategies. Most worryingly though, it seems that many business leaders are failing to understand the issue, with only 45% of CEOs and leaders acknowledging that their company pension scheme could drive climate change.
How sustainable are the UK’s pension investments?
That 131 million tonnes of carbon emissions financed by FTSE100 company pensions is the equivalent of roughly one third of the UK’s annual carbon emissions, so addressing this output would have a significant effect on the UK’s overall carbon footprint.
Because the carbon emissions financed by typical FTSE100 company pensions are seven times higher than the reported Scopes 1-2 operational emissions of those companies, in reality these companies aren’t as green as they as they might look on paper. Pension sustainability needs to be included in overall company reporting, as CEO’s and business leaders don’t have the full picture of how well they’re actually doing when it comes to their carbon credentials.
Maria is Head of Pension Investments and Responsible Investments at Scottish Widows. She is responsible for defining the investment offering across our pension business, covering workplace savings, individual and longstanding customer segments, and for incorporating ESG into the investment design. She has previously held senior DC investment roles at Mercer and JLT.
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