Millions of people around the world went on strike for the climate this September. It was galvanising to see such a huge demonstration of support for tackling the climate crisis.
But while it was encouraging to see political systems under a bright spotlight, another system is left unscrutinised in the battle to save our planet. We have no chance of meeting the Paris goals if the investment system is working against us.
Surprisingly, one of the biggest components of this system is our pension savings. They are invested in companies by our pension providers and prop up many of the companies who are destroying the climate. They can and should be building a climate just world.
The investment system plays a crucial role in providing finance to the companies which dominate our economy. The very same companies who have a significant impact on the climate emergency. Investors’ decisions about where and how to invest are reflected in the world that we see around us. It’s no coincidence that we’re speeding into a climate crisis when only 10 of the top 100 pension providers have their investment portfolios aligned with the Paris goals.
It’s easy to feel powerless when thinking about the workings of the investment system. It feels abstract, distant, and is a world full of jargon. But we don’t have to relate to it in this way.
Luckily, we have an in. The pension that you’re saving for and paying into isn’t sat quietly in a vault waiting for you to retire. Quite the opposite, it’s invested in companies that create the products and services we interact with day to day. Your pension isn’t just a number on a screen, it creates the tea you drink and the train station you commute into. It also creates a lot of things you’ll almost certainly be unhappy with.
While your own pension pot may not feel like enough to be a system changer, the collective weight of our pensions is. Of all the investments made in the UK over the course of a year, nearly half comes from our pension savings.
And companies need these investments. Whether it’s to finance new projects, secure new funds or takeover other businesses, they depend on money found through the investment system.
So what are our pensions really doing? They are building the world around us. They are an active driver of the day to day reality we interact with, with its perks and with its problems.
Isn’t that quite exciting? Pensions are usually a source of boredom or frustration. Our eyes glaze over when we hear the word pension and we worry we’ll never get them as retirement age rises. We worry too that we won’t have enough saved up as a result of job insecurity. Well thank goodness they can change the world!
Currently, it’s probable that over 10 percent of your pension is invested in fossil fuel companies. It’s likely that, through your pension, you’re also investing in weapons, tobacco and companies not paying a real Living Wage.
It doesn’t have to be this way.
There is a hole of $2-4 trillion a year that is needed to finance the UN Sustainable Development Goals. Our pensions could be helping plug this gap.
Pension providers have a legal duty to get returns to ensure adequate retirements for their members. However, it’s becoming accepted that investing money responsibly doesn’t necessarily affect this. And anyway, what’s the point of retiring into an uninhabitable world? We need to reprogramme the investment system to factor in impact alongside risk and reward.
We ought to have a say over the world our pensions are building. And in doing so, we can play a big role in directing flows of investment. There are currently few attempts made to gauge our values by those who manage our money. It’s our money, and as it has such a significant impact on the world, the people managing it should be guided by our values.
There has been action on climate in the investment space. New laws mandate pension providers to report on how they consider climate change. The concept of investing with environmental and social considerations in mind has gone mainstream.
The potential for change is enormous. There’s £2.6 trillion in UK pensions alone. That’s more than enough to pay for everything produced in this country over the course of a year.
But change is slow. As of 2018, only 87 percent of assets owned by the biggest pension funds had undergone a formal climate risk investment. And most people are still invested in fossil fuels through their pension.
Those with power in the system aren’t hearing our voices. Part of this is an unwillingness to listen from our pension providers. But there also isn’t a strong enough push of demand for better pensions. Why? Because people have been kept in the dark.
Common perceptions of what pensions are and do don’t recognise their impact on the world around us. Most people don’t know that their money is invested, and what it is invested in. In the meantime, pension providers carry on, unscrutinised by the people whose money is actually being invested.
There is a disconnect between the value driven choices we make to better the climate crisis and the unconscious investments made on our behalf. This is a knowledge gap that needs to be addressed.
A refreshed story of what pensions are and what they do needs to be told. And with awareness, comes action. Our experience tells us that when people realize what their money is doing, they act.
Whether pressure on employers from staff to select more responsible pension providers, or individual pension savers switching into ethical funds, demand can start to be evidenced for change in the investment system.
Michael Kind is a campaigns manager for ShareAction, which recently launched a campaign on the impact of our pensions on the world around us.
Image: ShareAction, Tierney Smith.