Last updated: March 2014
Why our pension funds could be the key to carbon reduction
Jen Glyn, Head of Communications at ShareAction writes about their Green Light campaign.
We all know that the decisions we make as consumers have far-reaching implications for the future of the planet. From buying local produce to thinking carefully about how we travel and heat our homes, the choices we make as individuals can help to reduce the UK’s carbon emissions as a whole. What we spend our money on is a vote for the kind of world we want to live in. But what about the money we save?
Green Light Campaign website.
Nearly half of working adults pay into a pension, most of us in schemes run by our workplace. All together, the money invested by fund managers is worth almost £3 trillion. That’s more than the total of the UK’s economic output. And, through the companies they invest in, our pensions are responsible for almost a quarter of the UK’s carbon emissions. This campaign aims to change that.
We’ve joined up with some of the UK’s biggest unions and environmental groups to get pension funds to take action to reduce carbon emissions and push for low carbon investments. The timing of this campaign is particularly pertinent – as pensions auto-enrolment is being rolled out across the UK, 6-9 million new savers will be added to the UK’s private pensions system over the next five years.
Pension schemes are one of the largest and most influential investor groups in the UK, and increasingly, as the recent outcry over the Church of England’s investment in payday lender Wonga shows, investors are now being challenged on ethical, environmental and social grounds. As pension savers we must demand that our funds take action on climate.
And climate is a risk that our schemes should be taking seriously. Pension funds are ‘universal owners’ with holdings across the whole of the economy. From a purely financial point of view, if the planet’s temperature continues to increase, the risks to business from extreme weather events and growing volatility of food and fuel prices will affect returns across the entire investment portfolio.
Most pension funds have invested billions in the companies drilling for coal, oil and gas – if global regulation to limit emissions comes into force then these fossil fuel ‘assets’ will quickly become liabilities. This ‘carbon bubble’ effect means it’s not just the planet that’s under threat – it’s the money we’ve saved for our retirement as well.
What can pension funds do about climate change?
Pension funds have enormous power and influence. Our schemes could kick-start a stronger, greener economy, by investing in clean energy, sustainable buildings, low carbon infrastructure, agriculture, water and waste management, and recycling. These investments make a lot of sense. According to the Confederation of British Industry, ‘green investments’ accounted for a third of the UK’s growth in 2011- 2012.
Instead most funds are heavily invested in fossil fuels and high-carbon industries like aviation. Some pension funds are already scrutinising their holdings to protect people’s savings from the ‘carbon bubble’, but many are taking no action at all.
So how can we make sure that our own pension funds aren’t contributing to the crisis? While moving your fund might seem like the answer, realistically it is fairly difficult to move your pension, especially if it’s provided by your employer. Some funds do offer options to screen for climate considerations, but to harness the full power of these funds we need to make it normal practice for mainstream pension providers to increase the amount of money they allocate to green investments, and to use their clout as investors to demand that fossil fuel companies clean up their act.
By pursuing short term profits, big fossil fuel companies are sleepwalking us towards catastrophic climate change. But that doesn’t mean there’s nothing we can do about it. Big investors can hold more sway over how companies like Shell and Chevron behave than some governments – so by calling on mainstream funds to take action we hold these massive companies to account.
It’s our money these funds look after. We just have to remind them that that’s the case.
It only takes a few minutes to demand your pension fund uses its power to fight climate change, not fuel it. Send your pension fund an email