Let’s face it – pensions aren’t the most exciting part of our financial lives. We know that they’re there to provide us with some money when we retire, but they are often such a faraway, future benefit that they’re easily forgotten about during busy days and endless to do lists.
But if we stop to think about these busy days, we’d realise that we often make choices that we hope will improve the future world we are going to retire in.
It has become second nature for us to focus on how we create a better tomorrow for the environment, society and the governance of companies (“ESG”) in our daily lives.
So, can our pension savings also help to create a future that we want to retire in?
Yes they can! It works through making sure that our pension is invested responsibly and sustainably, and any financial risks (including things like climate change) that could affect our final retirement pot are managed appropriately.
But what does this mean in practice?
While we’re working, the payments we make to our pension are invested in companies around the world. Collectively, these investments give pension schemes a share in the ownership of the companies invested in. This ownership comes with certain rights, like rights to vote at company general meetings on things like executive pay, and also gives investors a certain amount of control to influence company policies on things like gender diversity. Effectively, the idea is that as shareholders, we can apply pressure on companies to adopt better practices for the environment, for society and for their own company governance.
A practical example of this is Royal Dutch Shell. If we are to meet the targets set out in the Paris agreement on climate change, the oil and gas industry (which produces approximately 50% of global emissions) needs to take responsibility for all its emissions and demonstrate how it will position itself for a low carbon future. While Royal Dutch Shell has been an industry leader in this area, investors felt more could be done. A group of 60 investors voted at the general meeting last year on whether the company should set firm carbon emissions targets aligned with the Paris accord. The vote was passed and now the company has emission targets tied to executive pay – the shareholder pressure has ensured progression to greener practices.
This is just one example of many where active ownership and engagement with companies that pension schemes are invested in can help to address issues like climate change. So if you do have a thought about your pension in your busy day, then know that your pension savings are being just as busy creating a future we all want to retire in.
Head of Sustainable Investment
The views and opinions expressed in this blog are solely those of the original author and do not necessarily represent those of Smart Pension Limited or the Smart Pension Master Trust.
Launched in 2015, Smart Pension exceeds £4bn in assets under management (AUM) and now serves over one million members and more than 70,000 employers. It is powered by Keystone, Smart’s global savings and investments technology platform.
Aquiline Capital Partners, Barclays, Chrysalis Investments, DWS Group, Fidelity International Strategic Ventures, J.P. Morgan, Legal & General Investment Management, Link Group and Natixis Investment Managers are all investors in Smart Pension.