As we have been witnessing in recent years and months,
climate changes are occurring in every region and globally. A new landmark
report from the United Nations on the state of climate science has highlighted
modern society’s continued dependence on fossil fuels, which is warming the
world at a pace that is unprecedented in the past 2,000 years. Its effects are
already apparent as record droughts, wildfires and floods devastate communities
Put simply, net zero refers to the balance between the
amount of greenhouse gas produced and the amount removed from the atmosphere.
We reach net zero when the amount we add is no more than the amount taken away.
The UK became the world’s first major economy to set a target of being net zero
The Intergovernmental Panel on Climate Change report
published on 9 August emphasises there is still time to act, but it must happen
immediately. Limiting climate change demands strong and
sustained reductions in greenhouse gas emissions from human
activities such as burning fossil fuels.
One of the main areas where change can make a significant
difference to all of our futures is how and where our pension money is
invested. But the facts are, if money is invested in a standard, default pension,
it could be doing more harm than good.
Your pension is more than just a retirement fund, it can
also contribute towards building a better world. However, one in four pension
scheme members have never even heard of net zero, while three in ten can’t explain
or understand the connection with their pension pots and climate change.
According to new research, almost nine in ten Defined
Contribution (DC) scheme members were not aware of the importance of having
their pension scheme aligned with a net zero goal. But, encouragingly, members
were overwhelmingly in favour of their pensions moving towards net zero when
the term was explained.
The survey also uncovered that one in four (25%) have never
heard of the term ‘net zero’ and a further three in ten (31%) have heard of it
but could not say what it means. In fact, 70% of DC members prefer remaining
invested and using their collective power to engage with companies to align
their businesses with global climate change efforts, or prepare them to thrive
in a low-carbon economy.
Two-thirds (64%) of all members have become more concerned
about the impact of human actions on the planet following the COVID-19 crisis. Rather
than deprioritising environmental issues in favour of immediate concerns, the
pandemic has thrust them into sharper focus as members explicitly linked them
with their current situation.
Millennials are the strongest supporters of engagement, with
79% of them supporting providers’ stewardship activities. Their attitude also
helps to explain their change of heart towards outright divestment. While still
the most radical cohort of the three generations on this issue, half of
Millennial members would consider divesting if it had no performance impact,
while only two in five of them would divest no matter what.
Baby Boomers are twice as likely as Millennials to want to
keep pensions as diversified as possible, even if that meant investing in
fossil fuels, but the proportion has dropped from 30% to 25% over the past 18
months. The research also shows that more than a fifth of ‘Boomers’ (22%) are
now happy to divest into a greener pension regardless of performance. This follows
increased coverage of climate in the mainstream media and real concern about
the impact of climate change on their children and grandchildren.
Millennial men are the most likely to want a net zero
pension irrespective of the impact on financial performance. The proportion who
feel this way (40%) is double that of the group showing the least interest,
female Baby Boomers (20%).
As Baby Boomers move steadily into their retirement years,
the balance of power will shift as Gen X starts to hold the largest share of
pension assets. Younger views will be an important factor in shaping the
direction of travel over the next ten years. This new cohort can no longer be
assumed to be simply chasing maximum financial returns regardless of the impact
on the planet. 3
What Good Could Your Money Do?
Humanity has its work cut out to create solutions to the
many complex problems of the 21st century. We help you assess the risks – and
opportunities – posed by companies’ and countries’ performance in critical areas,
such as climate change, executive remuneration, and diversity and inclusion.
Please speak to us for further information – we look forward
to hearing from you.
 Survey conducted in April 2021, based on a population of
3,056 adults currently contributing to a workplace pension. Legal & General
Investment Management published 14 June 2021.
A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE
UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS YOU HAVE A PLAN WITH A PROTECTED
PENSION AGE). THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO
DOWN AS WELL AS UP WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.
YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME
YOU TAKE YOUR BENEFITS.
THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON
YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION WHICH ARE SUBJECT
TO CHANGE IN THE FUTURE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT