Many people would be horrified to find out that they have unknowingly invested in arms companies, tobacco companies and fossil fuel miners. This may well be a reality, as many people’s pensions are invested in unethical funds that don’t even offer them the best returns.
A new NerdWallet survey looked at the ethics of UK adults saving in a pension, finding nearly nine in 10 people would feel unhappy that their pension was invested in a company with a poor environmental, social or governance record.
Meanwhile, 79% said they would dispute their pension being invested in an unethical fund or company, even if it offers a good return. A lot of people don’t seem to know how their pension is being invested.
According to the survey, 85% of pensioners do not know where their pension is invested, and more than a third want their company or personal pension institution to be more transparent about the companies in which their funds are invested.
As a result, 85 percent of those surveyed were not convinced that their pension fund consists of assets that do not harm the company. In many cases, unethical funds don’t even offer the benefit of superior returns.
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We can then look at the investments offered and find the ethical funds in which they would like to invest. One potential way to do this is to research ESG funds. These are funds whose underlying investments meet certain criteria of environmental, social and governance standards.
In terms of environmental criteria, companies are assessed in different ways, analyzing their energy efficiency, waste, pollution, animal treatment and conservation efforts.
From a social standpoint, the way a business treats its employees and suppliers is scrutinized. For example, his health and safety record or if he pays a fair wage. It can also examine the impact of a business on its local community.
The governance criteria relate to the way in which the company is managed. This assesses the transparency of its accounts, if it has ever been caught operating illegally or participating in political lobbying activities.
This will give some insight into a fund’s ethics, but NerdWallet cautioned that it is not foolproof. They said, “There is no industry-wide method of deciding whether a company is ethical or not, it’s up to you or a fund manager.
“This means that you may personally disagree with what a fund manager thinks is ethical. For example, an ethical fund can invest in an energy company that still derives a large portion of its profits from fossil fuels but invests in sustainable energy.
“It may not be your own ethical standpoint. It is therefore also worth considering the fund’s objectives and its top 10 holdings. This will give you a clearer idea of what your money could support.
Ethical investing seems to be gaining popularity, and investment firms are eager to meet the growing demand. This means that most pension providers now offer ethical investment options. These can be ethical funds or entire ethical retirement portfolios.
People who want help deciding where to invest their pension can also find help online. Some investment platforms, for example, offer shortlists of ethical funds to help people with their research, which can be accessed whether you are a client or not.
Even people who are automatically enrolled in a workplace pension plan can still invest ethically if they choose. For example, the government-created Nest occupational pension plan offers an ethical pension fund.
Regarding the benefits of moving to more ethical pensions, NerdWallet said, “Shifting some or all of your retirement into ethical investments can help society and the planet. Research by Nordea has found that putting your retirement money in green investments could save 2,223 tonnes of carbon over your working life.
“Your pension could be your secret weapon in the fight against climate change. By investing your retirement in ethical businesses, you are providing them with long-term capital to help them grow their businesses and achieve their goals.