Ethical Pensions and Investments

Using your pension can be a great way to have an instant impact with ethical investing.  The money in your pension pot is likely already invested in a range of companies across the world, and there’s a good chance that you do not agree with the ethical or moral stance of many of the companies you are unwittingly investing in (as much of the UK FTSE100 is made up of banking, fossil fuel, mining, tobacco or arms).

Even if your current pension provider offers an “ethical fund” it is likely only a choice between 1.  Out of the thousands of ethical funds and investments in the world, it is quite unlikely that this default one selected by your pension provider (for all its pension customers) is the best for you.  What is defined as “ethical” by your pension provider might not align with your own views. 

The good news is that there iare a range of pensions out there that can allow you to invest in an ethical way.

Please note that not all types of pensions have the required pot of investments inside them.  Defined Benefit (Final Salary) type pensions do not, although there are still options for using pension savings to invest in an ethical manner.  If you have a defined benefit pension and you would like to discuss your situation and how you can invest ethically then please get in touch for a chat about your situation.

Blue investing is similar to green investing but with a focus on the marine environment.

You do not need a lot of money to start ethical investing, whether in your pension or not.  Many investments start small and grow over time.  Ethical investing is just changing the focus of what you are investing in.

Green pensions are pensions that help to address climate change by investing pension pot assets in companies that try to make a positive impact on the environment or excluding those that have a negative impact.  An example would be investing in a company that builds wind turbines but excluding companies that extract fossil fuels.

As with all investing there is risk and the returns are uncertain, but there is the added benefit that you know that your pension is supporting the global environment with long-term sustainable investment.

Many make the assumption that choosing to invest in Ethical investments means a trade-off – more ethical means lower returns.  This view is understandable, choosing to select investments by filtering for any requirement is going to limit choices, and the more choices are limited the likelihood of you being able to choose the best investments from a performance perspective diminishes.  And for many this is acceptable, the reduction in monetary income is literally a price worth paying for a more ethical portfolio.

Evaluating ESG criteria may be a way of enhancing traditional financial analysis, not replacing it. The aim isn’t solely to form sure that investment is ethical; the most objective of ESG, as with any investment, is financial performance.  The logic here is that companies who care about the environment, society and good governance should perform better in the long-term than companies who don’t prioritise those things – making responsible organisations a far better investment all-round. Of course, like any investment, the value of ESG funds can go down as well as up.

In most cases, yes you can use your pension to invest ethically. Most pension pots have within them a set of investments, usually a combination of shares and bonds. When you pay money into your pension each month this cash is used to purchase shares (for example) with the aim of these investments growing over time. These investments are your pension and they belong to you.

Environmental, Social and Governance (ESG) – a focus on ESG companies that demonstrate behaviours in terms of their environmental impact, social responsibility and the quality of their internal governance.