The Power of your Pension
This small personal change helps the environment and is, arguably, more powerful than going vegan, changing light bulbs and riding the bike combined.
(Disclaimer: information contained in this article does not constitute investment advice).
Addressing the climate crisis can seem overwhelming at times. We are fed a whole bunch of actions to do to save the planet. Go vegan, cycle instead of driving, change the light bulbs, turn the lights off, switch your energy to green – the list seems endless.
But there is one action, arguably above all else, that has the biggest impact. It changes how the biggest companies operate. It alters how politicians govern.
And that power is with you.
More specifically, where your money is invested.
According to the FT’s Alice Ross, it comes down to how you invest. And you invest in more companies than perhaps you realise.
One of those investment areas is our pensions.
The UK pensions market was valued at £2.2 trillion in 2019.
Two point two trillion going to companies chosen by the pension funds.
L&G are the biggest fund manager in the UK, looking after £25 billion in assets.
Where they choose to put their money is going to directly influence the kind of future we have.
But do we really have a choice?
I have a pension with L&G, so MotherTree did some digging.
At a previous job, I had been auto-enrolled into an L&G pension. I hadn’t touched it since I left that company back in 2017. So where had they put my money?
Pension companies are not clear on where their investments are going. L&G is no exception. At first glance, they had put my cash in a fund called “L&G PMC Global Equity FW 50:50 Index Fund G25”.
What the hell does that mean?
Further reading didn’t shed much more light, with the blurb stating that they invested the fund “in global markets”. Really narrowed it down there L&G, thanks.
But in a tiny link hidden under a bunch of text, I found the fund fact sheet. And this listed the top 10 companies my pension was invested in.
I was shocked by what I found.
1.6% in global mining corporation Rio Tinto (digging up large swathes of Africa),
1.3% in British American Tobacco (those guys are still in business?!) and worst of all,
3.5% in oil and gas (Shell and BP).
So despite screwing in all those energy-efficient light bulbs, moving to a vegan diet and trying not to buy anything wrapped in plastic, it was all fairly pointless given I was funding some of the most notorious companies in the world.
But there’s more.
Why had L&G chosen this fund? Well, their job is to grow their pension pots. So the returns on this fund must be good, right?
The fund showed a 32% return in April 2021 versus April 2020. (For every £1 I had in the fund, I was making £0.32).
Could they justify their choices through better returns versus the green alternatives?
I wanted to make sure.
I logged into Hargreaves Lansdown and hunted down the first green fund I could find: Pictet Clean Energy. Their objective of increasing “the value of your investment while seeking to achieve a positive environment and social impact,” was promising.
And its return across the same time period as the L&G pension?
A staggering 61%.
That’s DOUBLE the return on L&G.
So, L&G was making me less money and investing in companies that are worse for the environment.
What the heck?
But there is hope.
I hadn’t even thought to check my pension after I left my job but I am now in the process of switching it to a provider that offers green funds, at a reasonable return.
Remember, this is not investment advice. But it's worth double-checking where your pension is being invested and what you can do about it.
Where you decide to put your money matters.
It has a direct impact on the world we live in.
I don’t know about you, but I find hope here. With a little effort, we can influence the biggest companies in the world.
Our actions over the next couple of years will define the state of our Earth for the following generations. We still have a chance to live in a cleaner, healthier future.
And it starts with us.
Check out MotherTree to find out how green your pension is and what you can do about it.