The following’s a transcript of our monthly podcast, The Pension Confident Podcast. Listen to episode 16 here, watch on YouTube, or scroll on to read the conversation.
PHILIPPA: Hello and thanks for joining us here on The Pension Confident Podcast. This month, we’re investigating how you can use your pension and other investments to make good things happen.
We all like to do our bit to make a difference in the world. You might already be vegetarian or buying fair trade products. Maybe you’re volunteering or cutting down on flying. But, what if you could make your biggest impact just by looking into where your money’s invested? It’s called impact investing and that’s what we’re discussing today.
Here to help us understand what it is and how it can drive change, we’ve three expert guests. Campaign Director for Make My Money Matter; David Hayman. Hi David.
DAVID: Hiya.
PHILIPPA: Next, Anneka Deva, who’s Partnerships Director at Huddlecraft and heads up Money Movers, a non-profit initiative who empower women to take climate action through moving their personal finances. Hi Anneka.
ANNEKA: Hi Philippa.
PHILIPPA: Back for another appearance on the podcast is PensionBee’s Chief Engagement Officer; Clare Reilly. Good to see you again.
CLARE: Hi Philippa.
Now as usual, please remember that anything discussed on this podcast should not be regarded as financial advice and when investing your capital is at risk.
WHAT’S IMPACT INVESTING AND WHAT GOOD CAN IT DO?
PHILIPPA: Clare, shall we kick off with a definition of impact investing? What exactly is it? What’s the goal?
CLARE: What’s the goal? So impact investing’s investing with the aim of generating positive and measurable environmental, and social outcomes while at the same time generating financial returns. So really it’s about positive outcomes based investing. It’s looking at companies, looking at the impact that they have on the world around them, on people and on the planet, and making a decision about whether or not you want to invest in those companies based on that information. It’s a little bit different to the type of investing that you’ll probably be doing through the workplace, for example. So, if you’re in a workplace pension, chances are you’re in the default fund. That plan caters for the widest mix of people possible. It’ll have a range of different things in there, maybe adjusted for your age, and it’ll invest in global equities. It’ll invest in all of the world’s biggest publicly listed companies. But what that doesn’t tell you is the negative impact that an oil producer or company’s had on the world around them. It’s just looking at their short-term profit. So, it’s a very different type of investing.
PHILIPPA: Okay. Environmental, Social and Governance (ESG) investing, can we talk specifically about how this is different?
CLARE: Every company can have something called an ESG rating. So, ESG stands for Environmental, Social and Governance. This is a measure of how well a company’s operating. For an ‘E’ or environmental measure, you’d look at factors such as; does a company have a public commitment to net zero? Does the company have carbon emissions targets? Does the company have a waste reduction policy? That would be an ‘E’ score. An ‘S’ score can be to do with the workforce; do you have a gender pay gap or an ethnicity pay gap? Do you pay a living wage? Are your employees happy? Do you have a safe workplace? They’d be your ‘S’ scores. And then your ‘G’ scores are your governance scores. So, that’s the diversity of the company board, do you have protected voting and shareholder rights? Do you have the same Chairperson and CEO? These factors are making sure that your company’s properly run.
PHILIPPA: Okay, so this is about how organisations operate. Whereas impact investing’s about their intentions, the difference they’re making in the world. Is that right?
CLARE: Yes, that’s exactly right. And the important thing to note’s that you can have a very high ESG score, but also have a very negative impact on society. So, a tobacco company can have a very high ESG score, or a mining company can have a high SG score because they score well on the factors we mentioned. But ultimately, again, can have a negative impact on society, on the planet and people.
PHILIPPA: So David, the Make My Money Matter mission, it’s exactly what Clare’s been talking about, isn’t it? It’s helping people to understand the link between where they put their money and the difference they can make in the world.
DAVID: Yeah, absolutely. I think what we’ve seen over recent years is a real increase in individuals thinking about the impact they’re having on the world around them. From the food they eat, to the clothes they wear, to how we travel, to the brands we associate with, to the organisations we work for. There’s been a real uptick in engagement on our individual impact on the world. But what we’ve also seen is a significant disconnect between how we think about our money as a vehicle for impact. Most people think about the money in their pensions as being sat in a bank vault somewhere in Switzerland, slowly accruing interest. Hopefully in 30 years time when they retire, they’ll have some money to live a nice life on.
But the reality is - that money’s invested all around us for better and for worse in the companies which are shaping the world. So you have vegans invested in factory farming, you have doctors who are invested in tobacco and you have climate campaigners who, through no fault of their own, find themselves invested in the very companies they’re campaigning against. So our campaign’s all about raising awareness, helping people understand the links between their money and the world around them, and empowering them with more voice and with more choice to say where they want that money to go.
PHILIPPA: We all understand about consumer power, but this is a huge extension of it.
DAVID: Exactly. We see this as the next frontier of consumer power. There’s three trillion pounds invested in UK pensions. That isn’t money which belongs to financial institutions. It’s not private capital. That’s money which belongs to each and every one of us. Our pension pots are, for most people, the largest pots of savings that we have. These are huge amounts of money and we can put that to work in businesses which are gonna build a better future for us. We can’t only make our money work better for us today, but over the next decades it can be building that better world for us to actually retire into.
PHILIPPA: The good news is, of course, impact investing’s taking off, isn’t it? It’s grown 40% over the past two years. I believe there’s now $1.2 trillion assets under management in impact investing generally. It sounds great, but realistically, can it make a sizable dent in environmental problems?
DAVID: Absolutely. But, I think I’d take a step back. It’s something that Clare was touching on. For us, we’d consider all investments to be impact investments. All investments have an impact, for good or for bad. And there are very deliberate, tip of the spear investments in organisations which try and create a positive natural impact on the world. And that’s great. That’s the $1.2 trillion you’re referring to. There’s also an opportunity to look at the wider investments under management. Globally, there’s $56 trillion managed by pension funds. That money has an impact, for good and for bad. So, we want people to think about all their investments as impact investments - minimising harm and increasing good. If you can do that, if you can get people fundamentally thinking differently about their money. Not as something static and scary, but their biggest superpower to change the world. Then you can really, really alter significant flows of capital and change the world.
PHILIPPA: What sort of projects and investments specifically are we talking about? Give us a sense of the breadth of things we could be investing in, in this way.
DAVID: I think the obvious answer, which most people would jump to, would be renewable energy, which helps to tackle the climate crisis in very obvious, overt ways. We’ve touched on it not just being about environmental issues. If you want to be investing your money to make a positive impact; it can go towards medical research and healthcare developments, it can go towards affordable housing, it can go towards local infrastructure in your community - which helps to build more sustainable cities. So, there’s a whole range of investments which can have a positive impact.
PHILIPPA: Even things like financial and digital inclusion?
CLARE: Yeah. With financial and digital inclusion, I’ll give you an example of one of the companies that’s one of the top holdings in the PensionBee Impact Plan. It’s called Bank Rakyat. They’re a banking provider and micro-lender across Indonesia. So, Indonesia’s an archipelago of about 10,000 different islands and much of the population are rural communities who have spread out on these geographically dispersed islands. Over half the adult population of Indonesia remains unbanked.
So, Bank Rakyat, through their innovative way of offering banking services across this geography, seeks to bring in millions of Indonesians into the banking system. To, first of all, bring them banking services, but also as a micro-lender. And it does that with the purpose of building financial resilience, empowerment, and of course, increased prosperity for that country. So, that’s a great example of a company that has a very successful business model, but is also bringing millions of people into the banking system for the first time.
PHILIPPA: And that’s obviously a particular issue for women. And Anneka, that’s what you do at Money Movers, isn’t it? Your aim’s to encourage women in particular, to take action through moving their personal finances.
ANNEKA: Yeah, that’s right. Our movement’s a movement of women who get together with their friends, their colleagues and their neighbours to talk about money, and to talk about climate change, and take action. It’s a really simple model. Women are trained up as volunteer hosts, and then they bring together some friends around a dinner table or a Zoom room. Then we give them a toolkit and a coach. Over the course of three weeks they get together, talk about these issues, start to map out where they could take action and then support each other to actually take the action.
PHILIPPA: What sort of actions are you talking about?
ANNEKA: Things like switching your bank account, switching your pension to a different provider, making a sustainable or ethical investment - sometimes for the first time. But sometimes smaller actions such as talking to your partner or your dad about where their money’s being invested.
PHILIPPA: But these are big decisions, aren’t they? For people to move their pensions, even move their bank account. It’s a big thing. Sometimes it can feel very complicated. Are people nervous?
ANNEKA: Absolutely. I mean, when it comes to talking about money, it’s one of the most taboo subjects out there. Women are more likely to talk to their friends about sex than they’re likely to talk about money.
PHILIPPA: That’s not a big surprise, is it?!
ANNEKA: Yeah. So, there’s often a feeling, with both of these topics; money and the climate crisis. There’s a feeling of overwhelm, despair, inertia. But the feeling that you get when you actually start to get your head around this stuff, that you previously just thought, ‘oh I’m putting that on the too complicated pile’ is just incredible. You feel like an absolute badass.
PHILIPPA: Yeah. Because it’s, as you say, about making these decisions. You might want to move your bank account, but the choice’s tough, isn’t it? And you don’t wanna make the wrong decision. So you actually equip them with the information they need to make choices?
ANNEKA: No. So Money Movers doesn’t give advice. It doesn’t give information because we actually know that women out there, many people out there, what they don’t need is people telling them what to do. What they need is the confidence, the motivation, and the time to go and actually find out the information themselves. And they need someone to talk it through with. Someone who they trust, someone who’s not gonna patronise them.
17% of financial advisors out there are women. There are very few financial advisors out there who look like me, a woman of colour in my mid-30s . And so, when it comes to who I can trust to talk to about this stuff, it can feel like there aren’t many options. When in fact, when you start sharing information you realise, ‘oh there are loads of places I can go, there are loads of podcasts I can listen to, and actually I just want someone to talk it through with who’s not gonna tell me what to do’.
PHILIPPA: So you open the door, you’ve put the idea out there, they chat about it. Then David, you’re at the other end of it really, aren’t you? When people have made those decisions, you’re in the business of promoting the idea of opportunity for them to actually take action.
DAVID: It’s very similar to Anneka actually. Our job isn’t to tell anyone to move to ‘X’ back account or to ‘Y’ pension fund. Our job’s to really open up the conversation about why you might want to, why it’s important. Why, if you’re thinking about your lifestyle decisions, from food, to clothes, to travel, that you’re not thinking about money. Helping people understand that money’s actually our hidden superpower to build a better world. So, very similar to Money Movers - we’re about raising awareness and empowering people to make more positive, proactive decisions. An example we use, we do this with individuals and with businesses. It’s not about me going into a business and saying, ‘you should invest your money here’. But it’s about me going into a business and saying, ‘you’re doing this on your travel policy, you’ve ruled out air travel - brilliant. You’re serving only vegetarian food in your canteen - fantastic. You’ve installed solar panels across your buildings - brilliant’. Why would you have your multi-million pound company pension investing in ways which are directly contradicting those decisions?
PHILIPPA: Have they thought about that? Is that a new thought for them?
DAVID: We’re seeing increasing numbers of individuals and organisations starting to take action. But the gap’s significant. We did a piece of research earlier this year which showed that 95% of the FTSE 100 companies have sustainability plans, but only 5% of those mention their bank accounts or their pensions within them. That’s despite the fact they’re investing millions, if not billions, through their company pension schemes and have millions invested, or held in corporate accounts. So, there’s still a big gap between money and sustainability, which we’re trying to bridge.
PHILIPPA: And also they’re thinking about returns, aren’t they? Are we inevitably looking at lower returns?
DAVID: I don’t think so. You know, we can’t offer financial advice and no one here would. But I think, what we can do is point to numerous examples of the last one year, three years, five years, 10 years of more sustainable or impact-oriented funds matching, or outperforming their non-impact cousins. There’s no guarantees in life around how much money you’ll get back in any pension fund you invest in. But I think there’s an increasingly growing wealth of evidence that if you want to be making money long-term - investing in the businesses which are gonna be around long-term, which are gonna be successful long-term, which are gonna treat the environment and their people well - are good places to be investing your money.
HOW IT WORKS AND WHERE YOU’RE MONEY’S INVESTED
PHILIPPA: Now Clare, I wanna talk to you about PensionBee’s own new Impact Plan. Before I do that though, I wanna ask you about regulation because that’s gonna be in people’s minds. How safe is it to get involved in the impact investing market? Where, where are we on the regulatory front there?
CLARE: The industry’s regulated. The Financial Conduct Authority (FCA) have, in recent years, taken a very keen interest in introducing additional consumer protections around sustainable investing and sustainable products because of greenwashing.
PHILIPPA: Claims of sustainable investing?
CLARE: The general public are rightly concerned about greenwashing. They want to make sure that the label matches what’s in the tin. And so the FCA are bringing in, next year, a new set of rules called sustainability labels. The one that’s relevant to this conversation’s sustainable impact. So, the FCA will have a set of criteria and unless your product meets those criteria, you’re not allowed to use the word ‘sustainable’ or ‘impact’. But of course, everyone’s approaching impact slightly differently. I think, when we began looking, last year, at all of the impact options available in the market in the UK - there were lots of different flavours of impact. There are impact funds out there that have a lot of financial services, or big tech, or car producers in them. So, it mightn’t be that you view impact in that way. And so, it’s always important with everything that all of us agree that you need to look under the bonnet and check what’s actually in there.
PHILIPPA: Is it young people mostly who’re leading the way?
DAVID: I think it’s a real combination. I think the obvious answer’s yes, this is something which is more appealing to younger audiences who’re already pre-engaged on social issues, environmental issues, gender and diversity. So, yes we’ve seen that this definitely does resonate a lot with younger audiences. But, I think it actually is something which cuts across all demographics and all ages because it’s really about taking control over your money.
ANNEKA: Can I just come in on that? Just to say that when I started working on this at Money Movers, I started talking to my dad and he’s now finally retired. And my dad’s interested in what he can leave to his children and his grandchildren. The questions and the conversations we’re having at home about what he’s seeing on the news about climate change, about the volatility globally. Those are the things that he’s also thinking about. Thinking about what he does with his money. And my mum’s thinking about retiring and she’s wanting to ask questions about pensions, but historically that’s not been something that women have been as in control of.
You know, women weren’t allowed to get a credit card or a mortgage without the signature of a man until as recently as the 70s and the 80s. Women historically have not been involved in these conversations. So, when they get to retirement age, women are losing out. A woman in her mid-thirties is likely to have around a hundred thousand pounds less at retirement age than a man of the same age. That has to change. That has to change for all of us because what we know is that when women make financial decisions and invest, whether that’s through a pension pot or another investment vehicle, they think about their family, they think about the wider community, they think about the world. So do men, I’m absolutely saying that men are allies in this, but with the women we talk to, those are the primary things they’re thinking about when they’re making these decisions. Not, ‘how can I make a return in one year, in two years and three years?’
PHILIPPA: So Clare, David was talking about transparency and people knowing where their money is. So as I said, PensionBee has recently launched this Impact Plan. We’ve talked before on the podcast about your Shariah Plan, you’ve got a Fossil Fuel Free one, so why the new one?
CLARE: Our customers have led to the creation of all those plans. With the Fossil Fuel Free Plan, customers were telling us they wanted a way to be able to invest their money and take oil out, and take everyone associated with the fossil fuel industry out. So, we launched that in 2020. It’s kind of a first in the industry and we’re very proud of that. Then, as time went on, a group of customers, through surveying that we do regularly, came forward and said, ‘we want to go further, this isn’t going far enough’. We don’t wanna just still be invested in the same type of stocks and remove oil. We actually wanna see our money having a positive impact in the world around us’. And what our customers were telling us they wanted, didn’t exist.
So we worked all of last year to build this Impact Plan. And this plan’s a completely different way of investing to all of the other plans we offer because it has a very strict five-step vetting process in order for a company to be included in the plan. So first of all, any company needs to meet an impact theme - affordable housing, public health, green energy, financial inclusion. It also needs to advance one of the United Nations Sustainable Development Goals (UN SDGs). Then there’s a materiality check. So basically, more than 50% of the revenue of that company from their core goods or services needs to be advancing either the impact theme or the UN SDSGs. And then you have additionality - is this company an agent of change? Is this company meeting an unmet need around the world? And then finally, the really important one that I’ve mentioned, which is the measurable. How do we measure the positive impact that this company’s having over time to demonstrate that it really is having a positive effect? So, what you see when you look at the companies, these are not companies that you’ll see in other pensions because these are, potentially, the companies of tomorrow.
PHILIPPA: Yeah, I want to ask you about returns and I want to ask you about charges. Are they higher?
CLARE: Charges in impact investing? Because of all of the assessments that impact investing comes with - you can’t just buy the data like you can with ESG data. So, traditionally it’s been more expensive. The PensionBee plan’s 0.95%, which is the same as our other specialist plans. But historically impact investing has been a bit more expensive.
PHILIPPA: So thinking about returns, because obviously, this is why people invest. With the best will in the world, this is hard earned cash and they want to know what they’re gonna get out of it in the end. Is there an expectation that, realistically, they’re gonna see less than if they invest in a mainstream pension fund?
CLARE: No, I think that there’s a myth around lower returns and impact investing. I think the first thing to say is, the PensionBee Impact Plan seeks to replicate global markets. So, it’s in line with global markets. You’ve got to think about it in the other way as well - you can invest in the companies of today, the biggest companies in the world that are worth $1 trillion dollars at the moment. Or you can be investing in the companies of tomorrow, that are currently worth $1 billion and in 30 years will be worth $1 trillion, right? There’s actually a different type of return that you’re gonna get in 30 years by investing in companies that are taking care of the planet and society, than you are investing in companies that give you that quick, short-term return whilst destroying the planet.
PHILIPPA: Yeah and as we said, it’s not just pensions, is it? What about other investment products - stocks and shares, impact ISAs etc.?
CLARE: Yes, they all exist. It’s a growing industry. The conversation we’re having today is that we want people to be more aware of it and get more interested in moving their money into these types of investments.
CHANGING THE WAY WE THINK ABOUT INVESTING AND WHAT THE FUTURE HOLDS
PHILIPPA: If people are listening to this and they’re thinking, ‘yeah, I’m interested’, what are their next steps here? Because investments aren’t always as transparent as they should be. We’ve talked about this, people sometimes don’t know where their money’s invested. How can they find out, Clare?
CLARE: Well, the first thing to do is maybe have a look on the fund fact sheet. Log into your portal or Google the name of the pension fund you’re invested in. Try and find the fact sheet, see if you can look at the top 10 companies that the pension’s invested in. If it’s not on the fact sheet, you’ll probably be able to find it on Google. Look at those and ask yourself, ‘is that what I expected? Are those the companies that I want to be giving my money to?’
PHILIPPA: Not all providers make it that easy to switch, do they?
CLARE: No they don’t. PensionBee has been calling for many years for a pension switch guarantee to give people the ability to pick up their money and move it around the system. The way that you can do with current accounts or utilities. You’ve a right to move that money to another regulated provider. So keep trying, move the money and move it again if you find that the provider that you’ve moved to is not offering you the choice or the type of investments that you want.
PHILIPPA: I guess that’s something that chimes with you David?
DAVID: Yeah absolutely. And I think there’s two things here. One’s, an individual finding or switching a pension which they feel works better for them. And that’s absolutely an option people should take if they wish to. They should be able to see where their money is, see the alternatives and make a positive, proactive decision about that. That should be easy and straightforward. There’s also another option for people and that’s something that our campaign encourages. It’s for those who don’t feel confident in switching or who aren’t able to switch, to lobby for change to the pension funds they currently have. And that can have a really significant impact in of itself.
So, we’re not a switching campaign actually, we’re not trying to move everyone’s money one by one, as valuable as that is. We’re actually trying to impact the macro-default investment decisions of those big pension funds where the trillions are invested. And get them to invest the default fund more sustainably, more for impact. By doing that, we think you can achieve real scale change. So, what we encourage people to do, who don’t wanna switch, is to contact their pension fund and ask them what actions they’re taking on net zero, on deforestation, on investing for impact, on stewardship and on speaking out. We’ve got a helpful template on our website which lets people do that with a click of a button. And we feel like that can drive real change, showing the pensions industry that their customers really expect more and better.
ANNEKA: It doesn’t take many people asking questions within a company, to a pension provider for example, for them to start listening. So, it just takes some employees to start asking questions about what the default pension is for that company to start realising, ‘hey, this is something our staff really care about, maybe we should start thinking about this’. And so, that’s where we, at Money Movers, think the power of the movement, the power of coming together with other people to start asking questions, even if you don’t know all the answers, is incredibly powerful. And we’ve seen companies changing their policies, we’ve seen companies changing their practices. We’ve seen big banks making big announcements that they’re divesting from directly investing in fossil fuels. So, change is possible.
PHILIPPA: When they understand that it matters and when they understand people are going to know what they’re doing?
ANNEKA: Exactly, when they understand that both their customers and their employees really care about this, and together are going to be asking questions and taking action if the companies don’t listen.
PHILIPPA: Should we wrap this up with a bit of future gazing? What do we think the next impact product might look like? What would you like to see?
CLARE: Something that I’ve noticed and I think could potentially be very interesting in the impact investing space is place-based investing. So, it’s where you’re investing in your local area.
PHILIPPA: Lovely idea. Anneka?
ANNEKA: I’d love to see young people being taught about this in schools. About financial awareness, as part of their curriculum.
PHILIPPA: We’ve talked about this so much on the podcast, absolutely.
ANNEKA: For a lot of young people, they’re not interested in finances because they don’t think it matters to them. But there’s a real increase amongst young people’s interest in climate action. If they realise that they can have a secure future for themselves and for the planet at the same time, it’s a win-win.
PHILIPPA: David?
DAVID: A slightly different approach, maybe a bit controversial - I’d like us to not be talking about impact investing in five or 10 years. I’d like it to be fully integrated into how people think about investing.
PHILIPPA: So it’s the norm?
DAVID: So it’s the norm, exactly. I don’t want it to be a nice thing that 5% of people do or 5% of our money goes towards, that it’s a side thing, it’s separate and it’s distinct. It should be fully integrated into how the £3 trillion pounds of UK pension money’s invested.
PHILIPPA: Do you think we’re getting there?
DAVID: I think we’re getting there. I think there’s a fundamental shift taking place in how individuals think about money in businesses and how they think about money culturally. How we associate the role of money with climate change and impact. I think it’s taking time, but I think we’re getting there.
PHILIPPA: Lots of food for thought about the power we all have when it comes to where we invest. Thank you everyone for talking us through it.
ANNEKA: Thank you Phillipa.
DAVID: Thanks for having me.
CLARE: Thanks Phillipa.
PHILIPPA: Check out the show notes for lots more about impact investing and some handy links to other resources.
Once more before we go, please do remember that anything discussed on this podcast should not be regarded as financial advice and when investing your capital is at risk.
Next month’s a big one for the podcast. We’ll be recording The Pension Confident Podcast in front of a studio audience for the very first time and we’ll be tackling the question of pensions versus ISAs. Which one’s the best home for your money?
To help us work that out, we’ll be joined by four expert guests:
Financial Times Consumer Editor; Claer Barrett,
Founder of Money to the Masses; Damien Fahy,
Financial Expert, Author and Podcaster; Peter Komolafe,
And back with us from PensionBee - Director (VP) Public Affairs; Becky O’Connor.
We’ll be recording on Thursday 4 May at White City Place in London. Doors open from 6:30PM and you can grab yourself a free ticket by visiting our Eventbrite page. You’ll find a link in the show notes attached to this episode. Come and join us. We’d love to see you there! Thanks for listening. See you, in London, next time.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
