How green is your pension?

ESG related investing can help the drive for a more sustainable world. But how can you take it beyond your choices in food, packaging, fast fashion, transport? By investing ethically with your pension that's how.

Making better choices for the sake of the planet is something most people support. According to data from the Office of National Statistics (ONS), UK occupational pension funds have a total market value of £1.28 trillion (as of 30 September 2022). 

The ESG challenge

The challenge until now has been navigating the ‘green maze’ of buzzwords, jargon and different types of sustainability related investments; keeping on top of new developments in such a quickly evolving area; and, really importantly, avoiding greenwashing.

Thankfully stricter regulations introduced by the Financial Conduct Authority (FCA) make it easier for investors to identify authentic ESG related investments and decide if those investments are congruent with their personal values and objectives. Find out what you need to do to get started.

The first thing to do is check with your pension provider to see if they offer credible ESG investment and determine if they are credible (we explain a quick way you can do this in a minute). If you can’t get what you want with your existing provider, remember you can switch to a new provider that offers you more.

Pension transfer considerations

Before you consider transferring a pension, it is important to ask yourself:

• Will I lose any valuable benefits or features from my existing pension plan?
• Will I incur any penalties on my existing pension if I transfer?
• Is it an occupational final salary pension scheme? If it is, it is very unlikely to be advisable to transfer
• Have I considered the charges on my current plan? A new arrangement may be more expensive – especially if you have a stakeholder pension
• If I transfer out of my Workplace pension scheme, will I lose valuable employer pension and other employee benefits?

Choose how you want to invest

Here is an overview of typical investor needs and preferences with its ideal investment management approach. 

It's important to remember that some ethical funds may, by definition, have a limited investment universe; this may affect performance. As with any other investment, the value can go down as well as up and you may get back less than invested. 

• Invest in line with values – these investors may choose to invest in products that adopt a negative or norms-based screening approach. This means filters are applied to investments based on the minimum standards of practice, such as the International Bill of Human Rights and UN Security Council Sanctions, to determine whether an investment qualifies
• Avoid companies’ poor environmental or social practices – investors might want to invest in products that adopt an ESG integration strategy. This involves seeking out non-financial information to assess the materiality of that information and integrate material information into investment analysis and decisions
• Choose companies with better environmental or social credentials – investors make choices based on positive or best-in-class screening strategies, which is the application of filters to include desirable ESG criteria such as low carbon emissions. Also includes products that invest according to a sustainability-related theme, including those tilted towards desirable sustainability characteristics
• Positive sustainability outcomes – this group of investors are keen to invest in a way that contributes purposefully to positive environmental and/or social outcomes. Investments strategies may include positive or best-in-class screening strategies, investing according to a sustainability-related theme or products that pursue a positive and measurable environmental and/or social impact

Bestinvest investment experts define greenwashing as 'the overrepresentation or misrepresentation – either intentionally or unintentionally – of the qualifications and credibility of an investment portfolio that promotes itself as green, sustainable, responsible or ESG.'

Identify credible ESG investments

Here is an easy checklist for investors when considering investments claiming to be responsible, ESG, ethical or the latest sustainability buzzword:

• Do you know the investment approach? Credible investments will share their chosen ESG approach to investing alongside traditional strategies. These range from screening the best in class to traditional analysis 
• Is the information accurate, accountable and authentic? The FCA requires all ESG related claims be substantiated for the life cycle of the investments

Have you thought about a SIPP? 

SIPPs let you pick the funds and shares you want rather than having to settle for the typically more limited options offered by more traditional pension funds.

Good to know – SIPPs are not suitable for everyone as they can be more expensive than other types of pensions. If you don't want to invest across different asset classes or don't think you will make use of the investment choices that SIPPs give you, then a SIPP might not be right for you.

There is a wider range of investments to choose from than some other types of pensions, you can have more control over them and consolidating any pensions you have already can also help cut down on paperwork and possibly reduce provider fees. Although there are some things to think about before consolidating pensions – see the pension transfer considerations above.

How Bestinvest can help

Bestinvest have been helping clients invest in line with their objectives for more than a decade now – long before it was fashionable – and we have an established process of researching and identifying the funds that we think fit the bill. 

We're backed by the resources of our parent company, Evelyn Partners, the UK's leading integrated wealth management and professional services group. Evelyn Partners' aim is to generate strong risk-adjusted returns for clients by investing in companies that will create long-term value for all stakeholders.

At Bestinvest you can access a wide range of funds and shares that align with your investment goals as well as your values. Plus, if you want to transfer an existing pension over to us, we pay up to £500 in exit fees (T&Cs apply). Make sure you have considered all the pros and cons first though and sought advice if you're not sure. 

Get started

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