Most people don’t think of themselves as investors in the stock market, but a huge proportion of investments are held through our savings, pensions, insurance and banking. This means that money may be invested on our behalf in companies which are failing to take action on climate change. According to the Ethical Investment Research and Information Service, UK pension funds control more than a third of the shares on the UK stock market. This is likely to grow, as more people are automatically opted-in to company schemes under new legislation.
Trying to steer clear of ‘baddies’ is a tricky approach for a pension fund. Trustees have a ‘fiduciary duty’ to make sure that they invest the money in a way which gets the best financial return for savers. They’re also investing on behalf of many members, who will have different opinions on what they think is unethical.
There’s growing consensus, though, that a responsible investment strategy, taking environmental, social and corporate governance issues into account, is not just appropriate for pension schemes, it also makes sound financial sense. Pensions operate on a relatively long timescale, and we also have to acknowledge that it’s not in any pensioner’s best interests to retire into a world ravaged by climate-related destruction.
More immediately, there’s increasing agreement that it’s a pension fund’s duty to invest in companies which are dealing most effectively with the risks (and business opportunities) created by climate change. The government’s 2006 Stern report warned that global warming could shrink the UK economy by 20%. The environment is clearly not a ‘non-financial’ issue. And it’s not just a question of avoiding risks. A 2007 report by UNEP and financial consultancy Mercer, pulling together a range of research on investment performance, showed that ‘engaged’ investors got as good, or better, returns as those who were ignoring social and environmental factors.
What you can do
- Find out what your pension fund is already doing. By law, all pension schemes must state whether they have any socially responsible investment strategy in their Statement of Investment Principles. You may find this in the paperwork for your pension scheme, or in the Annual Report. If not, contact them directly and ask for this information.
- If you’re not impressed, get in touch with one of your pension fund’s trustees, and raise the issue with them.