How green is your pension?
You can turn your workplace pension into a force for good. Find out how ethical your pension is, here.
If you are saving into a pension why not use your investor power (and yes you are an investor) to power the change you want to see in the world?
Think about how you spend your cash. Are you choosing to buy organic? Avoid buying new clothes, or buying from shops where you know they’ve paid their workers the minimum wage.
The same goes for your pension, and another ‘yes’ because you can use your pension to change the world.
Back in late 2021, I wrote for inews that £8bn was invested in workplace pensions.
Even more money has since been paid into pensions, and since I wrote that piece pension funds, the large investment entities that ‘ringfence’ savers money for their retirement, have had to provide reports listing the impact of their investments on the environment.
Pensions - ethical ratings
This month the UK’s first ‘league table’ of leading master trusts carbon footprint performance was published.
Master trusts are the pension schemes that micro, small and medium-sized employers enrol their staff into.
Master trusts really took off after auto enrolment was introduced and because employers have to offer staff a pension these large pension schemes have managed to amass around £131bn assets, money which collectively belongs to around 25 million people.
The reports - known as Task Force on Climate-related Financial Disclosures (TCFD) reports - allow The Pensions Regulator to see what pension funds are doing to help, or hinder, climate change.
They are not rated reports but their existence is aimed at making sure pension funds and those running and investing in them are aware of the impact of every investment they make.
How ethical is my pension?
An organisation has listed the pension funds that are regarded to have been the most transparent in their reporting of their impact.
West London Business, a forum which has 120,000 businesses as members including Heathrow and Amazon Web Services (AWS), looked at the 17 leading UK master trusts with investments of over £1bn. These include NEST, Legal and General, Aviva and The Pensions Trust.
Within each master trust there are funds, the master trust - as with all pension funds - is a tax-free umbrella which includes lots of different investments.
WLB’s report rated the following funds - which are included in the 17 master trusts - Aegon BlackRock LifePath Flexi Default Level, NEST Ethical Fund and Fidelity Strategy B as scoring highly in meeting the criteria for carbon footprint for Scope 1 and Scope 2 greenhouse gas (GHG) emissions.
In simple speak this means they are taking their impact on climate change seriously.
Other pension schemes scoring highly include Aviva My Future Growth, National Pension Trust and SEI.
The National Pension Trust was found to stand out for their transparency in reporting the top 10 emission intense equities in each of their funds.
However, of the 67 funds reviewed across the 17 master Trusts in the study, only three funds (NEST, NOW: Pensions and Smart Pension) were found to voluntarily report on their absolute scope 3 emissions.
You can find out more about scopes 1,2 and 3 from the Carbon Trust.
A few master trusts including Aegon, Aviva, Mercer and Smart Pension were also shown to have started trialling the implied temperature rise (ITR).
This provides a forward-looking view of carbon exposure, however a more consistent and reliable reporting approach is needed for this metric to be accurately comparable.
Andrew Dakers, chief executive of West London Business, said the report would be followed up by another one next year.
“For the first time, the green pension report provides small business decision-makers with a comprehensive breakdown of how their auto-enrolment pension scheme measures up against its peers in relation to carbon.
“Our findings did reveal however that not all funds met the minimum reporting requirements and there is an urgent need for a more transparent and common approach to TCFD reporting, making it easier for stakeholders to access and interpret the data.
“Financial performance will continue to be an important part of decision-making however it’s important MSMEs planning their transition to net zero, can also make informed decisions on working with master trusts that align with their environmental sustainability goals. We hope this report will help provide a starting point.
“We make a specific recommendation in the report for The Pensions Regulator to ensure that master trusts publish the key metrics data in a machine-readable format moving forward, alongside their narrative TCFD reports.”
The Green Pensions report will be repeated by West London Business in Spring / Summer 2024, to assess and share an update on progress in the Master Trusts 2022/23 TCFD reporting cycle.