What is the impact of our pensions on the natural environment?
The UK’s nearly £3 trillion in pensions have a crucial role to play in driving responsible, nature-focused investment.
Back in December 2022, when world leaders gathered in Montreal for the United Nation’s Biodiversity Conference (COP15), at the top of the agenda was how to curb nature decline – specifically halting and reversing the damage already done and pushing the financial industry away from investments which harm the natural world.1.
Alongside net-zero emissions biodiversity loss and nature degradation are significant and dangerous drivers of climate change. With every uprooted patch of forest comes further harm to the natural environment, to the rights of indigenous people and, considering that 50% of global GDP is either partly or highly directly dependent on nature and ecosystems services, the investments of everyday savers as well.2
And although you might not realise it, pension funds have a key role to play in protecting nature and wildlife. That’s why our Nature and Biodiversity: The Pensions imperative report details the steps that we, along with the UK Government, policymakers and other financial institutions can take to help stop the catastrophic damage being inflicted on the natural world.3
What is biodiversity?
Simply put, biodiversity refers to the variety of life in a given area – animals, plants, fungi and bacteria all help to make up and sustain the natural world around us. Because forests play such a crucial role in reducing carbon and protecting nature, practices such as deforestation pose substantial risks to our planet and a major threat to human existence through the loss of these ecosystems and extinction of species. This is particularly worrying when you consider that, at the time of writing, 80 percent of land-based species shelter in forests. Yet a staggering 420 million hectares of forestland – equalling more than 200 times the size of Wales – have been converted to other land uses since 1990..4.
of land-based species shelter in forests. Yet a staggering 420 million hectares of those forests – more than 200 times the size of Wales – have been converted to other land uses since 1990
The link between pension funds and biodiversity
The UK’s nearly £3 trillion in pensions have a crucial role to play in driving responsible, nature-focused investment. The problem is, despite it being two years since the publication of The Dasgupta Review – which called for changes in how economic success is thought of and measured to protect the natural world – the financial services industry needs to do much more on nature action.
The silver lining is that many of our customers do care about the impact their investments are having on the environment, and want to make positive changes. This is evident from our numerous surveys, which have shown pension savers are concerned about the impact of their investments on the world around us, and want companies to have policies which ‘consider, measure and report’ the impact on nature loss and biodiversity degradation. Moreover, 86% of respondents in our 2022 Retirement Report said they were interested in sustainable investment and 72% of respondents to our inaugural Green Pensions Survey said it was important to them that their employers invest their pensions sustainably.6
The need for action
We’re calling on the UK Government and regulators to deliver transformative policy action that demonstrates leadership on the global scale, supports mobilisation of nature-positive capital from the finance sector, and optimises cross-stakeholder collaboration.
This is crucial. Right now, the UK’s natural environment is in rapid deterioration with one in seven native species facing extinction and 40 percent in decline.7 The UK Government should be demonstrating leadership in tackling this crisis and integrating nature-related risks and targets into all policy and regulatory matters going forward.
In collaboration with Global Canopy and Make My Money Matter, we have contributed to the development of deforestation guidance for the pensions industry. The guidance issued encourages pension funds and pension providers to measure and disclose deforestation risk within their investment portfolios, plus develop strategies to avoid contributing to deforestation. Our own strategies involve using data collected and distributed for public use such as Global Canopy’s Forest 500 and Zoological Society of London’s (ZSL) SPOTT, to put us in a better position to measure our own our impact on deforestation.
Nature and Biodiversity: The pensions imperative
In our report we explore why understanding the value of nature and taking steps to preserve and restore it, is key to a sustainable and prosperous future.
In 2021, ‘Our approach to Climate Change paper’ recognised just how vital factoring land-based emissions was in achieving climate goals, which led us to adapt our focus from ‘Climate’ to ‘Climate and Environment.’ Recently Scottish Widows also published Our approach to Deforestation paper which lists some of the steps we’re taking to deepen the awareness of the scope and impact of deforestation in our own funds.
In addition, Scottish Widows recently unveiled its new Global Environmental Solutions Fund, which is tailored to invest in companies helping to resolve nature and climate issues. Part of a host of new investment solutions worth £1.4 billion, the new fund targets companies involved in advancing alternative energy generation and supply, clean mobility, transport and infrastructure sustainability, forestry, sustainable agriculture, biodiversity preservation and pollution prevention.
Looking ahead, we also welcome the development and implementation of the disclosure framework by the Task Force on Nature-related Financial Disclosures (TNFD). Indeed, the framework should help promote a shift in global financial flows towards investments which benefit nature. Alongside this we are also optimistic that an agreement reached at COP15 around a Global Biodiversity Framework will result in more focus on the issue and put pressure on businesses and governments to treat the ongoing threat that biodiversity loss poses to our planet and finances, more seriously.
Maria is Head of Responsible Investments and Stewardship 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.
- LBG Low Risk Category Block: (weforum.org)
- 60908.pdf (scottishwidows.co.uk)
- Cutting-Deforestation-from-our-Pensions-final-report.pdf (makemymoneymatter.co.uk)
- Retirement Report 2021 (scottishwidows.co.uk)
- The realities of UK nature - in pictures | WWF
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