The turn of the decade has been an inflection point for sustainability worldwide, with 2020 being referred to as the year of the Green Industrial Revolution. Consequently, communities and individuals are becoming increasingly introspective regarding the changes they can make to have a more positive impact on the world.
One significant contribution that people often neglect to consider is how their savings are invested. The broadcaster, Sir David Attenborough, has aptly said investing pension savings into fossil fuels is “crazy” as it supports industries that are threatening the future that pensions are saving for. According to Cushon, “the standard UK pension pot unwittingly finances an average of 23 tonnes of CO2 emissions - each year - through the businesses the pension invests in. It’s a staggering volume, equivalent to running either nine family cars or burning 1,100 coal fires annually, simply as a by-product of saving for retirement”.
This makes sense right? But how can pensions have purpose without jeopardising performance?
Investing for purpose
Sustainable investing seeks superior risk adjusted returns in the long-term while directing capital towards companies that prioritize people and the planet in addition to profit. As more people choose to invest their savings in sustainable investments, this will have a huge impact on how companies - specifically those seeking finance - will operate in terms of Environmental, Social and Governance (ESG) factors.
One of the innovative companies helping people make better financial choices for their future, Cushon, has launched the world’s first Net Zero pension. By using financial technology to bring innovation to workplace savings and pensions, Cushon offset their portfolio’s carbon emissions and provides transparency around the funds they’re investing in and how they affect the world.
If you are seeking an investment manager to help choose the holdings in your ESG portfolio and manage it on your behalf, Canaccord Genuity Wealth Management is an industry leader. They were “one of the first top 10 independent UK wealth managers to offer an ESG Portfolio Management Service that allows you to align your investments more closely with your own values”. Additionally, they provide consistent news and insights from their ESG experts to keep you informed on the rapidly evolving realm of sustainable finance.
Investing for performance
One of the biggest misconceptions about sustainable investing is that it leads to lower returns. In fact, studies suggest sustainable investment funds yield stronger performance and have better survivor-ship rates over the last decade in comparison to non-sustainable funds.
Companies demonstrating strong ESG practices continue to outperform those with weak ESG practices in 2021. This is displayed in the FTSE4Good All-World Index below, which is a tool for investors seeking to invest in companies that demonstrate good sustainability practices.
Figure 1: (FTSE4Good, 2021)
Pension funds are a critical force in the global economy, allocating individual savings towards businesses and instruments considered safe, prudent and sustainable - at least in theory. As of Q4 2020, Pension funds held over 35 trillion USD of assets worldwide.
Government policy, political will and private sector investment are all key to mobilising finance towards combating climate change, environmental destruction, biodiversity loss and social inequality.
As we anticipate the biggest-ever generational transfer of wealth, we can expect that the Pensions of the future will integrate sustainability considerations by design, rather than by short-term public pressure. After all, isn’t investing really about looking forward?
Disclaimer: The views, thoughts and opinions expressed within this article are those of the author (Dominic Wall on behalf of Off The Wall Insights). Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company to buy or sell any product or security.
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