How do pension providers score on ethical and environmental issues?
Below we have highlighted how the pension providers rate in our system for important issues like climate change, transparency and investment in unethical practices such as armaments.
Carbon reporting doesn't equal meaningful carbon action
Financial companies’ climate reporting has improved since our last round of research, if only in the sense that they’ve made their reports longer and more detailed. Financial companies are clearly keen to demonstrate their awareness of climate issues, and these reports occasionally read like university applicants’ personal statements, attesting to how ‘passionate’ and ‘driven’ these companies have become (apparently just over the last couple of years!).
However, just as the enthusiastic undergraduate application may omit tendencies towards procrastination and inaction, so too does the zealous rhetoric of financial companies.
No providers were awarded our best rating for carbon reporting, and just one – Circa5000 – scraped a middle.
We have seen some industry-wide positive steps, with investment companies increasingly acknowledging some responsibility for the emissions of the companies that they invest in, but concrete commitments to science-based emission targets were, at best, still under development.
Investment policy and transparency
Pensions are offered by a broad range of company types, but they share a responsibility to invest your pension responsibly and transparently. Our newly revised investment transparency rating attempts to capture this complexity.
In order to get a best rating, providers must have a detailed investment policy that covers all assets under management. We were looking for companies to have company-wide exclusions – that is, not just for their ethical or sustainable funds. Exclusions should include companies involved with particularly damaging sectors: fossil fuels, indiscriminate weapons, deforestation, and human rights abuses.
We were also looking for companies to disclose their investments, and to disclose how they vote in the shareholder meetings of their investee companies. All of the pension funds that we looked at disclosed their top 10 holdings online, and these can generally be found easily through an internet search. Some, like Nest, Penfold, and Legal & General go a step further and allow customers to see all the companies that their pension is invested in.
Amongst pension providers, only Nest and Legal & General met all of these criteria. Whilst these companies’ investment policies did still contained gaps, they were significantly more developed than those of their competitors.
Arms and military supply
Most pension providers explicitly exclude investment in what they generally label as ‘controversial’ or ‘indiscriminate’ weapons. These generally include cluster munitions, biological and chemical weapons, and anti-personnel landmines. Nuclear weapons are noticeably absent from these lists, despite being both indiscriminate and controversial.
Even Nest, does not exclude nuclear weapons from its default funds, arguing that ‘a policy on nuclear weapons divestment is not precise and would exclude some of the largest companies in the aerospace & defence industry’.
Excluding aerospace and defence companies sounds like a positive move to us, but savers will need to select Nest’s Ethical Fund if they too wish to avoid investments in nuclear arms.