Stories That Matter: What Climate Impact has my Pension Money?

What Climate Impact has my Pension Money?

I want to address today one of the most pressing challenges for the pensions industry – carbon emissions. Here’s a question: how often do you think about your impact on the environment? Perhaps with relative regularity; maybe when a news story breaks about deforestation or wild weather, worrying wildfires and ice caps melting? It could be when you notice litter in the street. Perhaps you give it a passing thought once a week as you put out the recycling. Here’s another question: how much do you think about the impact your pension money is having on climate change? Do you give it any thought at all? It’s something I have been thinking about a lot lately, and here’s why.

Ever wondered how much damage the average pension does? Given that listed companies emit 480 million tonnes of CO2 annually (source), you can calculate that the average pension funds 23 tonnes of CO2 per year, equivalent to annually running nine family cars or burning 1,100 coal fires.

Showing the impact your pension money has on climate will lead to more engagement of participants in pension schemes. Most participants in pension schemes are unaware that their pension is having this impact, and once made aware a large majority will be concerned that their pension money could be investing in businesses that are contributing to climate change.

What do I propose to do about this challenge? Personalize the climate impact every participant has with their own pension money. Make participants in pension schemes more aware of the impact on climate change their money has. To launch a campaign about ‘What climate impact has my pension money?” which can be used by pension providers to engage their participants to use hands to protect, with strength, our earth.

The main challenge in collective pension systems is the low engagement levels of participants with their pension. One of the goals of new pension systems like the one which is implemented in the Netherlands as of 1 july 2023 is to increase the engagement levels of participants by offering them more insights in where their pension money is invested or even offer them choices in where to invest their pension money. A consequence of low engagement levels is that employees don’t review their contributions and so by default continue with the auto enrolment minimum levels. Employers are concerned that employees aren’t saving enough for retirement.

While lack of engagement with savings and climate change may seem unrelated, my view is that they are inextricably linked. My advice about a new storytelling connecting pensions and climate aims to turn this negative correlation into a virtuous circle, in that the more people that are engaged with their pension, the more they save, and the less damage is done to the climate.

Outcomes, Benefits, Challenges and Next Steps

I have linked two issues, climate change and lack of engagement with pension savings, to provide a solution with the potential to be a catalyst for change; increasing member engagement and helping tackle climate change. Further, I believe that a ‘What climate impact has your pension money” will help pension providers to focus their participants on investing their money into climate friendly portfolio’s. One of the myths which will have to be tackled is the erroneous idea that choosing for climate means accepting a lower return on your pension money.

My belief is that it is possible to be ‘net zero now’ rather than later and, whilst we acknowledge that this approach is not perfect, I take the view that action is required and should be taken where possible.

Changing the way we invest: Reduce as much of the overall carbon emissions as we can by diverting investments into companies that generate less carbon, without compromising our members’ investment returns.

Helping to restore balance:?Whatever can’t be eliminated through the pension fund can be offset by contributing to environmental projects that restore balance in the climate and remove carbon from the atmosphere. This is called offsetting.

Engaging participants in pension scheme:?‘What climate impact has my pension money?’ insight lets participants know on how investments will be used in the companies they help fund. Content feeds can be added which share news, photos and progress on your environmental offset projects, so members can see exactly how their own individual pension money is changing the planet for good.

Loose CO2, not money:?We know that people want their retirement savings to help tackle climate change without sacrificing returns to be able to build an investment default fund that doesn’t compromise on returns.

The next challenge pension providers are faced with now is finding fund managers who could provide net-zero investment solutions – identifying a lack of innovation in this area. Action should be taken to bring pension providers professionals responsible for innovation together with fund managers who can provide net-zero investment solutions to further accelerate the journey to net zero pension.