You recycle religiously and you’re considering getting solar panels installed. You’ve drastically cut down on flying and try (where possible) to take the train instead. You do meat-free Mondays and have even considered becoming vegan. Reducing your carbon footprint matters - but that’s not all. You’ve stopped buying ‘fast fashion’ and you’ve made a conscious decision to boycott companies who treat their employees poorly. 

Doing the right thing for the environment, your community and society more broadly, really matters to you. 

Now what about your pension? Do you know that the money you put into your pension pot every month is an investment? And do you know where it is invested? Does this matter to you? Is your investment strategy in line with your ethics? Could your pension have the power to the change the world for the better? 

Let me explain: those of us in a formal employment are likely to have a workplace pension. Most of us will be paying into that pension every month and will benefit from contributions our employer makes into this long-term savings pot.    
When you save into a pension, that money gets invested - but how many of us know about those investments and think about where it goes? Most pension plans give us the option of deciding what to invest in: you can opt to invest in the default fund, or you can choose to ‘self-select’ funds. Either way, if making a positive contribution to the world matters to you, it may be worth gauging what you’re actually putting your money behind.

How to find out where your pension money is invested

If you have opted for the default fund, a lifestyle investment strategy for people who can't or don't want to make their own pension decisions, it’s worth looking under the bonnet of this option to see how it performs when it comes to sustainability and assessing its ESG credentials. The framework investors typically use to evaluate how well companies or funds do this is called ESG - Environmental, Social and Governance. 

The ‘E’ will look at how companies work to reduce their ecological footprint or make products using less water. The ‘S’ covers how well companies treat their staff, their customers and suppliers. The ‘G’ is about how effective the company management is and how transparent its governance is.

Alternatively, to grow your pension pot in a more sustainable way, you can look to self-select a fund with an ESG investment objective. These funds may have ‘ESG’ or the word ‘sustainable’ in the fund name, however, this isn’t always the case. The clue to finding out if the fund you are investing in does take sustainable investing or ESG principles into consideration is by reading more about the fund’s objective and strategy. 

A good source of information is the fund factsheet, a one-page document that will give you information about the fund you’re investing in. 

The fund strategy will tell you whether a fund aims to reduce or halve its carbon exposure relative to the broader stock market. Or if it aims to steer clear of any investment in companies involved in controversial weapons, civilian firearms, the tobacco industry or fossil fuels, to name but a few.  

The fund factsheet may also include details of the top ten companies that the fund is invested in - note that this may change over time, and it’s worth looking at the most recent fund factsheet. Fund factsheets are typically available on your pension portal.  

Looking through these documents will give you an idea of whether the money you’re paying into your pension is going into companies involved in fossil fuels or other industries which you may want to avoid. Avoiding such companies in investment parlance is known as ‘negative screening’. 

For many investors, however, this isn’t enough. They also look at ‘positive screening’; in this case a fund’s strategy might be to actively seek to invest in businesses making a positive impact, like renewable energy suppliers. 

Finally, through engagement, investors can help companies in the middle – those trying to minimise their negative impacts to become more sustainable. It is worth finding out whether the company who runs the fund you’re investing in takes this type of engagement seriously.

Will it impact performance?

Often the elephant in the room when it comes to sustainable investing, is the question of whether investing in line with your ethics and values, will mean missing out on returns.

There’s growing evidence that the opposite is true. At the heart of sustainable investing, we’re looking for companies that are building sustainable futures - ones which involve good management, transparent practices, and are not going to come under fire for not complying with regulations.

To put it simply: if you care about the environment, your employees and good governance, the chances are you are a better company. So, over the long term, investing sustainably could lead to better returns.

Will it make a difference?

Ok, so now you know your pension is invested, and why it matters where it is invested. The next question is: how much of a difference can you make by investing your pension sustainably? The answer is: quite a bit, actually. 

One study, by Swedish bank Nordea¹, suggests that investing in a sustainable fund can be 27 times more efficient at reducing your personal carbon footprint than the combined effect of making ‘green’ lifestyle changes such as eating a meat-free diet, taking fewer flights and using public transport!

Thinking about how we invest and grow our savings can bring about real and positive change to the world we live in. Don’t be an accidental investor - look under the bonnet of your pension investments and make sure you’re investing in line with your values, morals and ethics. Ultimately, changing the world is not just about changing your day-to-day behaviour - it’s also about getting engaged with your pension pot and where it’s invested.

Read more about sustainable investing and your pension


1 - Nordea

Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. An Investment Manager’s focus on securities of companies which maintain strong environmental, social and governance (“ESG”) credentials may result in a return that at times compares unfavourably to similar products without such focus.  No representation nor warranty is made with respect to the fairness, accuracy or completeness of such credentials.  The status of a security’s ESG credentials can change over time. Past performance is not a reliable indicator of future returns. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.