The growing momentum behind green pensions

Like many of my peers in the financial services sector, I have been eagerly waiting for COP27 Summit.

With UN Secretary-General António Guterres warning of a “distress signal”, policymakers, business leaders, and analysts the world over are calling for urgent and ambitious proposals to fund the “implementation” of existing commitments to transition the global economy toward a lower-carbon, more sustainable future.

Climate solutions have been one of the defining topics of this year’s summit, with much made so far of loss and damage financing for countries most affected by extreme weather events and rising sea levels.

As some of the world’s most economically influential non-state actors, financial services companies have an absolutely vital role to play in realising these commitments, by acting as a steward for the financing of innovative and equitable solutions to humanity’s most pressing issues.

What is stewardship, and what can it achieve?

Being significant shareholders in many of the world’s companies, financial institutions – especially sizeable asset owners such as pension funds – can have immense influence over the flow of capital to sustainably-focussed companies and technologies to fund solutions to the climate crisis.

Through their investment strategies, ESG-focused pension funds can directly foster better corporate behaviours – encouraging the growth of low-carbon industries and new technologies, reducing emissions, promoting social justice, and delivering long-term returns for members.

In order to meet this responsibility, pension funds and providers like Scottish Widows should follow a strong stewardship policy – a framework of how they plan to use their influence and shareholder voting rights in order to encourage transparency and promote more sustainable activity.

Our latest Scottish Widows Responsible Investment & Stewardship Report, released earlier this year, provides many examples of how this approach works in practice.

Alongside key milestones in our own sustainability strategy – such as investing up to £25 billion in climate-aware strategies by 2025 – our report evidences how we work with large companies such as Tesco, Shell, and Walmart to markedly improve performance over a range of ESG factors, from labour management to net-zero commitments.

In the case of Walmart, for example, we liaised with executives following allegations of anti-union activities in the US, which would constitute a violation of the United Nations Global Compact. Engaging directly with the company, and through our appointed investment managers, we are pleased to say that its ESG rating has moved from BBB to BB, following changes in the company’s policies and approach.

To overcome the climate policy challenges that have been so clear at COP27, we will need long-term collaboration between public and private sectors. I believe these stewardship approaches provide a perfect example of the proactive actions that asset owners and managers can take to help drive the much-needed implementation of existing climate commitments.

As vast shareholders, pension funds can and should be challenging companies – to hold them to account, to encourage them to make positive changes, and to create long-term benefits for the environment, the society, and ultimately for pension scheme members who invest in these companies.

Not just good for the planet, but for people too

In many cases, these responsible approaches not only benefit the planet, but can provide stronger returns, greater satisfaction, and safer risk profiles for pension scheme members in the long run too.

Our recent Green Pensions Report has shown that the vast majority (82%) of UK workers are increasingly expecting their employers to take an active stance on ESG issues, with strong workplace policies around sustainability. This includes “green” pension options, with seven in ten (72%) expecting their employer to invest their retirement savings sustainably.

This may be driven in part by the increased visibility of climate and social justice issues, which have become far more prominent in the media in recent years, and with far greater scrutiny of international events such as COP26 and COP27.

From our position as one of the UK’s leading pension providers, we are seeing first-hand how this increased consumer awareness filters down into our engagements with pension scheme members. One year ago, we launched our Find Your Impact Tool – a mobile phone app feature which allows workplace pension savers to view the ESG impact of their investments.

In a recent survey of Find Your Impact users, we found that 71% of respondents stated that investment managers should vote against the re-election of board members if a company doesn’t commit to sustainability targets.  95% of respondents additionally agreed that companies should consider, measure, and report on their impact on nature loss and biodiversity degradation.

It is encouraging that, while policymakers thrash out green finance proposals in Sharm El-Sheikh, there is clear and growing appetite for more sustainable options at the grassroots level too. Consumers want companies to be held to account for their actions. Pension providers and other asset owners are uniquely placed to meet this demand, and show they are serious about tackling issues of climate and social justice.

In previous years, the pensions industry might have been perceived as slow moving or even silent on such issues. Now, I would challenge that: every day, I am buoyed by the significant momentum in our sector, with firms making faster, bigger, and better steps toward financing the climate transition.

On Solutions Day at COP27, I’m calling on my industry to continue this drive, ensuring that we realise the opportunities for job creation, productivity enhancements, and inequality reduction that can be achieved through a just transition to a net-zero economy. Ultimately, it’s not just best for our planet – but for people, their livelihoods and financial security too.