Is your sustainable pension as green as you think?

If you are currently an active member of your employer’s pension scheme, there is a fair chance you could be unwittingly contributing to climate change. Does that sound a bit of a stretch? Well, not according to a recent investigation conducted by the Carbon Tracker Initiative (CTI) as reported in the Guardian newspaper. 

Nowadays, pension funds typically badge themselves as ESG (Environmental, Social & Governance), Sustainable, Climate, Carbon or Transition. However, the findings by the CTI suggest that more than 160 funds with a green label still invest in oil and gas companies, equating to around £295 billion. According to the CTI, as many as 25 members of the Net Zero Asset Managers initiative invest in carbon intensive giants such as ExxonMobil, Chevron and TotalEnergies, and claimed that it will take time for investors to alter their strategies.

Further accusations of greenwashing have prompted the regulator, the Financial Conduct Authority, to publish rules intended to clean up how funds describe their green credentials. But is this enough?

Short term investment gain vs long term environmental benefits

The problem is, is that there is clearly still a tension between the short-termist, target driven culture of asset management on the one hand, and the longer-term strategic action needed by business to achieve net zero on the other. There’s no denying the current short-term trade-off between investing in renewable energies and relative investment performance.

Whichever way you look at it, the global demand for energy from traditional sources, such as oil and gas, is likely to remain high and this in turn will continue to make these companies very attractive from an investment standpoint. Asset managers will continue to hold these stocks, because for most, the bottom line remains.

Putting you in charge of your pension

The issue here though is that for many investors, the wool is being pulled over their eyes. You believe you have made an ethical choice by having a sustainable pension and are happy with its performance. But the reality is that your asset manager has decided on your behalf that performance is in fact more important than your ethical standpoint. But this is very much a decision that should be yours to make and nobody else’s.

Recent initiatives, including those by Make My Money Matter are attempting to raise general awareness of just how climate friendly an employee’s pension fund really is, and to take back control over how their retirement pot is managed.

How to protect against greenwashing

If you are curious to know just how green your pension funds really are, ask to speak to your employer’s designated contact at their chosen pension provider. We at SK also have access to a range of resources which can help identify exposure to industries which may conflict with your values.

Our own investment partner, Square Mile Investment Consulting & Research also have an expert team of analysts who monitor and ask questions of a fund’s socially responsible credentials. The benefit is that we achieve a level of transparency when making fund recommendations that can give our clients confidence they are investing according to their own ethical values, something that should be true across the pension market.

Ultimately, by adopting the Make My Money Matter approach and holding asset management’s feet to the fire, we like to hope that urgent change and greater transparency in the pension industry will come about more quickly.