You might not think that your pension has anything to do with being environmentally-friendly, but choosing to go green with your retirement savings could reduce your carbon footprint.

With climate change at the forefront of people’s minds, many future retirees are considering making a change that could benefit the planet: switching to a green pension.

Essentially, investing in a green pension fund means that the companies you hold as part of your retirement pot will mainly be in sustainable industries, such as renewable energy. These funds aim to exclude or phase out those industries doing potential harm to the environment, such as fossil fuel companies.

We’ve put together this simple guide to green pensions to help you understand what they are, why you might want to consider investing in one, and how to ensure your retirement savings are invested responsibly.

What is a green pension?

If you have a workplace or personal pension, your money will most likely be invested in a wide range of companies around the world in different industries. The hope is that, over the years, returns from these investments will be enough to provide for a comfortable retirement.

You might not think much about what investments you hold, but it’s important to consider that a large proportion of the UK’s £2.5 trillion pension industry is invested into fossil fuels, tobacco companies and deforestation projects which damage the environment.

There’s no fixed definition of a green pension, but it’s generally understood to be one that has few or no investments in such industries, ideally investing instead in green energy or companies which aim to provide solutions to the climate crisis. Some define it more generously as a pension that aligns with the values set out in the Paris Agreement, the international treaty aiming to achieve net-zero carbon emissions by the middle of the century. This means that a fund could be considered green if it still has some investments in the ‘harmful’ companies listed above, as long as it has pledged to phase these out by 2050. As a general principle, the more your pension leans towards renewable, carbon-neutral investments, the greener it is.

Do I need a green pension?

The UK pension industry currently accounts for an enormous amount of carbon emissions. According to net-zero provider Cushon, the average UK pension pot finances 23 tonnes in carbon emissions each year through the companies it invests in – equivalent to running nine family cars or burning over 1,000 coal fires.

Their research also suggests that across all age groups, over 50% of people want to know that their pension investments are environmentally sustainable. However, there are also plenty of  people who are unaware of the impact their pension may have on the environment, or mistakenly believe that their pensions can only be invested into climate-positive companies.

Yet investing your pension responsibly does make a big difference. According to research by Make My Money Matter, Aviva, and Route2, switching to a green pension is 20 times more effective in reducing carbon emissions than driving an electric car, 40 times more effective than switching to a green energy tariff and a massive 57 times more effective than going vegan. It’s also relatively simple to do by comparison!

How do I get a greener pension?

If you enrolled into a personal or workplace pension scheme and didn’t make any specific requests about how your contributions are invested, then you will probably be invested in your provider’s ‘default’ fund. These tend to be one-size-fits all, multi-asset funds, covering a range of industries including ones which may not be so environmentally friendly.

However, both pension and workplace pension schemes will usually offer alternative funds that you can opt into if you wish. Don’t be afraid to ask your employer or personal pension provider about other funding options, and see if a greener alternative is available to you. If you’re not satisfied with those options, try encouraging your employer to explore alternatives (if it’s a workplace scheme) or put pressure on your personal provider to take part in the Make My Money Matter campaign, a project that advocates for more ethical pension schemes. You can find out more about the campaign here. You can learn more about where your pension is invested in our guide ‘Where is my pension invested?

What is greenwashing?

Lots of providers offer pension funds that they claim are sustainable, but this isn’t always the case. The practice of falsely marketing a product or service as environmentally-friendly is known as ‘greenwashing’.

It’s often very easy for companies to get away with greenwashing due to a lack of official checks, and the absence of an industry standard definition of ‘green’. Funds might base the companies they invest in on their particular Environmental, Social, and Corporate Governance (ESG) scores, but these may only filter out the absolute worst offenders, and doesn’t necessarily guarantee that the companies they pick will be environmentally sound.

How can I find out how green my pension is?

Generally, the best way to find out how green a pension fund is is to do some research yourself. If you can, check which companies the fund invests in to see whether you are comfortable with their practices, and consider them to be environmentally-friendly or to have a positive social impact.

There are various tools that can help. For example, the ‘Find Your Impact’ feature on the Scottish Widows smartphone app allows members to assess different companies’ carbon footprints. You can use this tool to receive a personalised sustainability rating within seconds, based on the companies and funds you are invested in via your workplace pension scheme.

Which providers offer the greenest pension funds?

If you need a place to start, there are a few personal pension funds with good green credentials, but these are not recommendations and you should see professional financial advice to help you choose the right pension investments for you.

The government’s National Employment Savings Trust (NEST) ethical fund invests in companies with positive records on human rights, fair labour practices and fair trade policies, and avoids tobacco companies, and arms manufacturers, among others.

Scottish Widows, meanwhile, has announced plans to invest £25bn in companies tackling climate change by 2025, with at least £1bn going to firms developing climate solutions and green energy. The pension provider isn’t yet carbon-neutral, but has expressed a commitment to reaching net zero by 2050 to match the Paris Agreement. You can read about their climate change approach here.

Where to get more help

If you want professional financial advice on your pension investment options, you’ll need to speak to a financial advisor. Find out more in our articles How to find the right financial advisor for you.

Alternatively, If you want personal recommendations or advice about your specific circumstances, you can find a local financial advisor on VouchedFor or Unbiased.

If you think you might be interested in speaking with a pensions expert, Rest Less Financial Services is now offering our members a free Pension Health Check with a Rest Less Pensions Expert.

Do you want a greener pension? Or have you already taken steps to ensure your pension is responsibly invested? We’d be interested in hearing from you. You can join the money conversation on the Rest Less community or leave a comment below.

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