Investing responsibly for your pension and the world

Newer
06/07/2020
Older

The rise in ESG (environmental, social and governance) investing recently has been quite astonishing. The market continues to register record inflows into ESG focused funds, even during the recent market sell-off in March this year. When billions of pounds were being pulled out of equity markets, ESG focused funds witnessed £113 million pounds of net inflows. This is a trend that shows no sign of slowing down.

Data suggests we could be just at the beginning of the ESG journey. The chart below shows the five stages of adopted innovation. If we view ESG investing through this lens as a new innovation, with just 2.3% of U.K. invested assets being ESG focused as of March 2020, there could be a long way to go in the move towards more ESG investing[i].

 

The Five Stages of Adopted Innovation. The Investment Association, March 2020

 

Is this the year of responsible investing?

The fall in equity markets that the COVID-19 pandemic caused has given many people time to evaluate where their pension is invested, and for what purpose. Historically this purpose was simple, the aim was capital gain in order that they, and their loved ones, could enjoy a comfortable retirement safe in the knowledge that their financial future was secure. This still of course remains the central purpose of a pension, but it is no longer the only purpose. The very nature of the COVID-19 pandemic has highlighted the need for investment in a range of key areas and opened up new opportunities.We witnessed a massive reduction in air pollution across the country during the time in lockdown, as transport ground to a halt. Companies from a variety of industries answered the governments call to produce PPE, tests and begin research to find a viable vaccine. We have never before experienced a market fall of this nature, and with these consequences. It has undoubtedly focused the minds of many investors to the major challenges the world currently faces. Investors now have a second goal in mind and that is investing in such a way that their money can have a positive impact on the world.

The impact of a responsible pension

An individual’s pension is often where the majority of their wealth will exist when they come to retirement age, especially if they have been prudent and saved regularly. This means that there are huge amounts of capital invested through pension schemes that could potentially be re-directed into ESG funds. The impact this money can have is enormous, it is estimated that by investing a pension into an ESG focused fund could generate 27 times greater improvements in personal carbon footprint than[ii]:

  • eating less meat
  • using public transport
  • reducing water usage
  • flying less

Of course, this is not an argument against doing those important actions listed above, reducing one’s carbon footprint should be achieved by taking a number of prudent steps, but there can be no doubt that focusing a pension into ESG investments can be a quick way to have a dramatic impact. It also allows an individual to be invested in companies that are working towards solving some of the world’s most challenging problems, whether that be the environment, fair pay, diversity of workforce to name but a few.

There is also strong evidence to suggest that being invested in an ESG fund could be good for an individual’s pension balance as well as the planet. Research suggests that those who believe their pension savings are having a positive impact are likely to try and save more each month into a pension[iii]. This can only be a good thing, as we are all living longer and healthier lives making sure we save as much as possible and as early as possible is vitally important to making sure we are financially secure in retirement.

Leaving the planet, a little better than we found it for future generations is fast becoming as important as investment returns and investing your pension into an ESG focused fund can go some way to achieving that. We believe the future for ESG investing is a bright one. It has the potential to help confront some of the world’s major challenges whilst at the same time allowing people to enjoy a comfortable retirement.

[i] The Investment Association

[ii] Nordea

[iii] Franklin Templeton

 

The value of an investment with Rowan Dartington may fall as well as rise. You may get back less than the amount invested.

Past performance is not indicative of future performance.

The information contained does not constitute investment advice. It is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Full advice should be taken to evaluate the risks, consequences and suitability of any prospective investment. Opinions provided are subject to change in the future as they may be influenced by changes in regulation or market conditions. Where the opinions of third parties are offered, these may not necessarily reflect those of Rowan Dartington.

Rowan Dartington is part of the St. James’s Place Wealth Management Group. Rowan Dartington & Co. Limited is a member firm of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales No. 2752304 at St. James’s Place House, 1 Tetbury Road, Cirencester, Gloucestershire, GL7 1FP, United Kingdom.