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Good Money Week: Don’t retire on dirty money

27 September 2019

Becoming a pensions activist can play an important part in affecting climate change, says Ted Harrison


Pensioners concerned about the environmental situation for their grandchildren can wield new power with their pension provider

Pensioners concerned about the environmental situation for their grandchildren can wield new power with their pension provider

PENSIONS seldom hit the headlines, except, perhaps, when an unscrupulous tycoon raids the pension pot of his own employees — the most notorious case being that of Robert Maxwell’s Mirror Group. After his mysterious death, in 1991, it was discovered that he had stolen £460 million from the pension fund, and the pensions of former Mirror workers were cut by half.

When pension schemes work well — fortunately, outright theft is rare — most people think of pension provision as a dry subject. As long as the pension payment appears dependably in the bank account every month, all is well.

Yet, increasingly, questions are being asked about how pension funds are being invested to provide the funds from which pensions are paid. Lobby groups such as Share Action say that the money belongs to the future beneficiaries. “We all have a stake in the way that it is spent,” Beau O’Sullivan, of Share Action, says. “Yet many of the decisions on how it is invested are made behind closed doors.

“We believe that the investment system can be a force for good. But only if these decisions are made openly, and with more than short-term profit in mind. There needs to be a wholesale systemic change in the pensions industry. Pension savers should be able to see where and how their money is put to work across the world.”

For several years, trustees of pension schemes have been grappling with the question how they should take account of environmental, social, and governance factors in their investment decisions.

Until recently, trustees were hamstrung by “fiduciary duties” that effectively required them to seek the best returns, irrespective of ethical issues such as the threat of climate change. Pensioners not wanting their pensions to be paid from the proceeds of the fossil-fuel industry, for instance, were told that pension providers could not simply disinvest from these investments.

A SIGNIFICANT legal change comes into force on 1 October. The majority of trust-based pension schemes will be legally obliged to take account of ethical factors in making their investments: money should not damage the environment or exacerbate climate change; should not exploit the vulnerable in society; and should be invested legally. Trustees must listen to members’ views, and, by October 2020, will have to publish their Statement of Investment Principles (SIP) online, and report on their stewardship of funds.

The change, the law firm Linklaters says, will “dispel confusion” and allow trustees to use pension money to benefit the environment, “by investing in green finance and social impact investment”.

The Minister for Pensions and Financial Inclusion, Guy Opperman, says: “Pension schemes have a significant part to play in tackling the climate emergency. They should be thinking about how they can meet the long-term interests of their members by driving new investment in important sectors of the economy — helping to deliver sustainable environments, jobs, and communities.’

The executive director for regulatory policy, analysis, and advice at the Pensions Regulator, David Fairs, says: “Good governance, and the management of investment risk in pensions schemes is fundamental to provide savers with a good retirement.

istockLobbying for your pension to be invested ethically can contribute to saving the planet, while still making good returns

“Climate change is a core financial risk which trustees will need to consider when setting out their investment strategy. They will be obliged to show how they are taking this, and other financially material considerations, into account over the lifespan of investments.”

The Church of England Funded Pensions Scheme has published its SIP. Investment is governed by the same ethics that govern all church investments. The First Church Estates Commissioner, Loretta Minghella, says: “We have an opportunity to use our investments in the most responsible way we can. It enables us to join investor coalitions and insist on change. It would be very nice if policymakers could solve the problem; but, as shareholders, we have a fantastic opportunity to get companies to listen to us.

“To solve a wicked problem requires the public, civil society, all manifestations of faith organisations, government, business, and finance working together. The work we’re doing now as investors is about putting pressure on businesses to play their full part in bringing about a more sustainable environment, which is necessary for investments to do well.”

Recently, a tranche of faith, social, and charitable organisations, including the Royal College of Emergency Medicine, the Royal Society of Arts, the National Trust, and many Roman Catholic church funds, have announced their disinvestment from fossil-fuel companies.

The Church of England has adopted a more nuanced position: in 2015, it disinvested from tar sands oil and thermal coal — two of the most polluting fossil fuels. It still, however, has funds invested in many of the big oil companies.

It was agreed that, from 2020, Church of England investment funds would disinvest from companies that were not taking their climate-change responsibilities seriously; and, by 2023, would have disinvested from fossil-fuel producers deemed not to be focusing on the internationally agreed actions and goals to limit climate change.

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