How can pension providers do more to help tackle climate change?

Sustainable investing will lead to better investment returns and give us a great opportunity to help members to build a better relationship with their pension

How can pension providers do more to help tackle climate change?

I was lucky enough to join various esteemed industry colleagues to give evidence before the Work & Pensions Committee as part of their inquiry into pension scheme stewardship and COP26 (that’s the 26th UN Climate Change Conference of the Parties (COP26) climate summit… in case you need to look that up). The committee is hoping to publish its views ahead of the Glasgow-based gathering in the autumn, so it was great to be involved. 

On my panel were senior representatives from Aviva, NEST and BTPS. It was fun stepping outside my day job and debating the important issues concerning pension investments, stewardship, governance and the real hot topic of ESG and responsible investment. I’m not sure appearing before a parliamentary select committee was even on my bucket list, but it was great to get the opportunity to engage with politicians and be part of the parliamentary theatre. If you have a spare hour you can watch the whole conversation here. If not, here are some of my reflections on the issues raised. 

At Smart Pension, we have a diverse set of trustees who are committed to strong stewardship and responsible investment. They realised very early on that our members in all aspects of their lives see sustainability as something they care about. Our trustees applied the logic that pensions are no different so made the decision to make sure we invest pension savings in a responsible way.

We now invest in sustainable funds which are funds that invest relatively more in companies with strong environmental, social and governance (ESG) credentials, and less in those who are doing less well in these areas. Our default investment strategy initially invests members’ savings in the Smart Growth – Moderate Risk Fund, this fund aims to have 76% of all investments in specific sustainable funds. 

We believe that sustainable investing will lead to better investment returns and gives us a great opportunity to help members to build a better relationship with their pension. If people are passionate about sustainability in their personal lives, then thinking about their pension and where their savings are invested is a logical step.

Tony Burdon, Chief Executive Officer of Make My Money Matter, spoke at the session before mine. Tony spoke eloquently and passionately about the difference pension providers can make and it was great to hear the latest progress on the aim of getting providers to sign up to net zero by 2050 (Smart Pension is one of these I’m proud to say). Take-up has been good so far, but more need to sign up and make the commitment. We need to start seeing real progress in utilising technology and innovation so we can deliver against our commitments to help decarbonise the economy.

There was a great debate on whether removing companies that aren't sustainable from investment portfolios is the answer – the divestment approach. There was consensus on the panel that active ownership and strong stewardship is the answer here, working through and with fund managers is key. Far better to change behaviour for the better and positively influence change rather than just stop investing, although the threat of divestment needs to be there if strong stewardship doesn’t deliver the desired results. 

There was a consensus in the group that members are at risk of being confused by pension providers. The issue of greenwashing is a hot topic and there is a challenge to hold pension providers to account. I’m sure the folks at Make My Money Matter will be quick to highlight good (and bad) practices. But to my mind, this is all about fundamental change and not just a PR stunt. So, for example, while offsetting against a scheme’s carbon footprint in the short term is better than doing nothing, it is no substitute for decarbonising the investments and contributing directly to a greener and more sustainable world. Furthermore, there was a good discussion about evaluation and standard-setting, with broad agreement across the panel that consistent standards across the world, more data, common terms that are easy to understand, common methodologies and metrics are surely a great place to start. 

Finally, we spoke about what the future of pensions looked like, and I highlighted research we conducted with our members recently where 91% said how their pensions are invested in the future is important or very important to them. And 87% stated they would even be willing to get a lower investment return on their pension savings if that would help tackle climate change. Those are very strong messages for us at Smart Pension that we are acutely aware of and drive what we are trying to achieve, so watch this space!

So, another experience ticked off my pension bucket list (that’s not a real thing, by the way… at least not yet). Thanks to the committee for asking us to give evidence and let’s all hope that COP26 delivers against the hype and builds on the Paris agreements to secure a sustainable future for our planet.

About Smart Pension

Launched in 2015, Smart Pension exceeds £5bn 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.