There’s no doubt that we’ve seen an increase in focus on responsible investing. With Cop26 in Glasgow and climate change high on the agenda, it’s hard to miss. However, it isn’t necessarily translating into changes to the way people invest their pensions.
Research we carried out showed that while many people have made changes to their lifestyle to help tackle climate change, such as turning down the heating thermostat by one degree (which almost six in 10 people told us they are doing) and cutting down on single use plastic (which more than four in 10 are doing), only one in seven people with a pension told us they currently invest it responsibly.
However, that is not to say there wasn’t significant interest in this area, with more than half of people (57 per cent) telling us they are willing to have their pension invested responsibly.
The question that leads on from this is, why is there a gap between what people say they want for their pension and what they are actually doing?
The opportunity for advisers
From our research, it appears people don’t know where to start when it comes to responsible investing – or they simply don’t know what it means and what it involves.
If those are blockers to people taking action, or at least considering responsible investment, it provides an opportunity for financial advisers.
Financial advisers excel at helping their clients understand the choices they face and the implications of one course of action over another. We believe that advisers have a key role to play in helping people understand what responsible investing is and what the options are when it comes to their pension.
The role of advisers is not to push clients down a responsible investing path, but to explain the options and, by asking questions, find out what matters to their clients and what that might mean for their investments.
Some clients may be more interested in the idea of responsible investing than others. Our own research found a significant age divide, with more 18 to 34-year-olds (66 per cent) willing to invest their pension responsibly than those aged 55 and over (40 per cent). Women were also more likely to say that all pensions should be invested responsibly (52 per cent) than men (41 per cent) – but they are also more likely to say they don’t know where to start.
The challenge of explaining responsible investing to consumers
Responsible investing isn’t complex, but it isn’t necessarily straightforward to explain either. In the early days of ethical investing, it was arguably a simpler story to tell as the few ethical funds that existed aimed to screen out so-called ‘sin stocks’, such as tobacco, alcohol and gambling.
These days, fund managers running responsible funds are more likely to engage with companies they invest in to influence and, where necessary, put pressure on them to, for example, reduce their impact on the environment, ensure that their decarbonisation plans don’t have a negative impact on their workforce and community or improve their governance.
