Overcoming UK Pension Investment Inertia Over ESG

Tom Burroughes Group Editor London 11 April 2022

Overcoming UK Pension Investment Inertia Over ESG

We talk to a new UK business that says it helps holders of pension funds to shift into more sustainable investment approaches without some of the demoralising paperwork and delays that often put people off.

ESG, sustainability, impact investing. Wherever one looks, the terms are everywhere. In fact, if a wealth manager wants to be a bit risqué, and go against the crowd, not having offerings under these titles is the way to go. But by and large every business in the sphere appears to be talking about these ideas. But….the devil is in the detail. Moving investment funds to a more “ESG” or “sustainable” model isn’t always easy. There can be understandable inertia and worries that shifting portfolios will cost money in dealing and related costs. Another nagging concern is whether ESG is going to deliver the goods when a person retires. One such space where inertia is a problem is that of occupational and private pensions. Often heavily regulated and subject to complex tax rules, pensions may not always be a frontline wealth management topic, but many HNW clients use them. Advisors need to pay attention. 

A recently-launched, UK-based firm called The Sustainable Pension Company is trying and make it easier for people to migrate pensions to ESG ways of investing, and swiftly. WealthBriefing talked recently to Andy Harris, commercial director, and Roger Milbourn, investment chairman, about why they set TSPC up, its strategy and their thoughts on the ESG space. Harris has worked in financial services for more than 30 years, 20 of which have been in the independent sector, building and running small to medium IFA practices. Milbourn has worked in financial services for more than two decades as an investment advisor and independent financial planner, with numerous roles in senior management. 

What sort of problems does TSPC aim to solve?
Our research shows that people want a truer alignment of their retirement savings with their personal values, and that they are keen to ‘do their bit’, so we are seeking to move their pension savings from potentially harmful to harmless funds, into investments that are having a net positive impact on the world.

The problem is that pensions are confusing; add in the ‘sustainable/ESG’ overlay and it becomes even more complex. The decision to switch your pension is an important one, and without expert guidance, it is for most people a bridge too far.

Even when people have made the decision to move their funds, the question is how they go about making the switch.

We are committed to educating people, helping them to understand that they can change the way in which their pensions are invested, with ease – enabling them to play their part in addressing the climate crisis and better align their investment approach with their personal values.

We felt it was important to look at constructing our own portfolios, investing in collective funds that look deeper into what companies are doing, whilst including a more impact-based investment approach.

We have worked with a boutique discretionary fund manager in constructing five risk-graded portfolios; each is designed to make a positive impact on the world, without compromising the investment return.

Why did you set up the firm, and when did it go live for clients?
We became aware of, and were motivated by, Make My Money Matter, a people-powered campaign fighting for a world in which we all know where our pension money goes, and where we can demand that it is invested to build a better future. It led us to establish The Sustainable Pension Company, which we launched officially in January this year.

The MMMM campaign was established by the writer and director Richard Curtis, the overarching objective of its campaign being to get big corporate pension schemes to invest in responsible companies, with more sustainable practices.

Make My Money Matter states that moving an average UK pension fund into sustainable investments will have 21x the effect of giving up flying, becoming a vegetarian and switching your energy supplier.

We understand that a lot of savers do not know, truly know, where their old workplace pensions are invested – their active workplace pensions perhaps too. Many would be shocked to discover the sort of companies their pension monies are invested in. Most old-style workplace pensions are passively managed, and many will contain a FTSE100 tracker – and they tend to lean heavily towards fossil fuels – so many investors are automatically invested in the good, the bad and the plain ugly.

Unless a saver is in a specific fund, or a portfolio that focuses on ethical and sustainable investing, by the very nature of risk-rated pension funds, they will be invested in companies that have a negative impact on the planet. One study undertaken last year, by Clim8, shows that half of all UK adults in the UK are completely unaware that their pensions can be potentially harmful.

There is a high chance that your personal values are anything but aligned and it is our mission to help those savers find out where their pensions are invested and to move them to something more appropriate when appropriate.

Whom are you targeting?
Unlike Make My Money Matter, we are targeting individuals, namely those invested in one or more Defined Contributions schemes.

We see our core target markets as the great number of people who are unadvised, who have numerous pensions – typically from previous employers – and who place greater emphasis on investing for good. They are most likely to be in their 30s and 40s and/or at least five years away from retirement.

That said, we are receiving enquiries in these early stages from a broad church.

Quite a few people have asked whether they can transfer a proportion of their pension fund – whether it is a case of all or nothing. Transferring part of your pension is a good starting point, and we are happy to facilitate this.

The greatest positive is perhaps the number of clients who are becoming increasingly aware of the control they have over their own investments, and who are conducting their own independent research into sustainable investing; they are looking at the implications of greenwashing and refusing to settle for a green label.

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