“If we don’t start to lever change with investments now, the breakdown of ecosystems and society will render investments worthless anyway,” PensionBee Fossil Fuel Free Plan customer.
At PensionBee, it’s our customers who lead on our product development. Over the last few years, many have become increasingly vocal about their desire to address some of the world’s biggest problems, such as climate change, through their investments. In 2020, customer survey feedback led to the creation of the Fossil Fuel Free Fund, a plan that excludes companies with proven or probable reserves of oil and gas, tobacco, and violators of the UN Global Compact. We run an annual survey to understand whether our plans continue to meet their investment expectations. In our most recent survey, Fossil Fuel Free Plan customers told us that they are happy with the plan, but do want us to go further with the exclusions. We took this data to our money managers and secured their agreement to broaden exclusions to companies that provide services to the fossil fuel sector.
A small group of customers also expressed a desire for a plan that only invests in companies that are addressing the world’s biggest social and environmental problems. A positive change or impact fund. We searched the market and found a range of potential options, though we struggled to find any that fully meet our customers’ needs. As just a small number of global companies meet the strict investment criteria requested by our customers, these pension plans can only typically be invested in around 30 to 60 handpicked companies. This level of risk is much more concentrated than PensionBee’s other existing plans, which tend to be invested in thousands of different companies. All plans of this type are actively managed, with a team of analysts picking stocks based on their understanding of impact and value. Actively managed plans tend to have higher costs.
Committed to our practice of always being led by our customers, we took the question to them about which of the four options they like best, as well as their views on the risk, cost, and exclusions. This research helped us understand more about what our customers expect from this type of plan.
Insights from the research include:
Respondents are broadly aligned in feeling comfortable with taking on more concentrated investment risk as long as it delivers more positive outcomes. However, they also want to balance making a positive impact with securing their own financial futures.
The most popular option was invested in the highest number of companies (40-60), whilst maintaining a relatively low level of concentration per company. Only up to 4% of the plan can be invested in one company. On the other hand, the least popular option can be invested up to 10% in one company and is only invested in 25 to 50 companies.
Customers also commented on exclusion criteria, supporting the plan with the highest level of all the options. Respondents believed that plan to be more environmentally focused; as the only plan option that explicitly excluded deforestation, a major cause of climate change (1).
Full survey results are available here.
Our findings suggest that the current options on offer in the market don’t fully meet customer needs. Whilst customers are happy to take more risks to drive more positive change, the most popular plan is invested in the highest number of companies. Respondents also want to balance their financial futures with investing for good. We want to explore the market to find a plan that has hundreds or thousands of companies but with more stringent exclusions and a focus on impact.
Stringent exclusion criteria were praised by respondents, so we want to see if such criteria can be combined with a higher number of holdings in a more diverse range of companies. This, we believe would be a better way to manage risk and cost, whilst meeting customer preferences around exclusions.
Our next steps are to deepen our research to work out how we can best meet our customer needs and build a pension that enables a comfortable retirement whilst going further in creating the kind of world in which savers can enjoy retiring. This includes conducting in-depth customer interviews and focus groups. These findings will also help us continue our talks with money managers and to explore the potential to create a new type of plan. This plan would remove sectors of concern and focus on impact, but without taking on so much concentrated risk. In an era where it’s difficult to separate the greenwash from the genuine, we strongly believe that our customers are leading the way to a transformative and responsible investment system. We’ll keep working very hard to make their approach to investing the future.
If you have any thoughts you’d like to share, please email us at firstname.lastname@example.org. We’re very keen to hear from you!