Fossil fuel-free investment plans can be more profitable, data suggests

Ffion White

by , PR Manager

05 Dec 2023 /  

Dec 2023

A placard reading one planet, one chance.

Pension savers choosing fossil-fuel free pension plans are likely to have seen higher returns during 2023 than those in mainstream default plans, according to analysis by PensionBee, a leading online pension provider.

Comparing the MSCI ACWI ex. Fossil Fuels Index, which excludes oil and gas producers, with the main MSCI ACWI index, in the year to October 31 2023, gross returns for the index excluding fossil fuels were 6.99% compared to 6.75% for the index that includes oil and gas producers. Over a ten-year period, the index excluding fossil fuels has returned 7.18%, slightly higher than the 6.81% gross return for the mainstream index, on an annualised basis (see table 1).

Becky O’Connor, Director of Public Affairs at PensionBee, said: “Market performance data dispels the myth that excluding fossil fuels means lower returns.

“Comparing two major indices: one that excludes fossil fuels and one that includes oil and gas companies, reveals that in both the short and long term, there has actually been marginal outperformance in the fossil fuel-free index.

“This suggests that global stock market performance no longer depends on the inclusion of oil and gas companies in the way it perhaps once did. This in turn means that a strategy of investing in oil and gas on the grounds that it is necessarily the best way to generate profits, is probably flawed.

“This could be a key turning point in unravelling some of the long-held beliefs that global economies need to keep investing in fossil fuels to survive and thrive and that individuals need to keep invested in fossil fuels to benefit from investment growth. It appears that capital markets do not agree.”

Delegates at COP28 in the United Arab Emirates continue to thrash out how to switch the world away from fossil fuels and focus on renewable energy generation instead and the heat is turned up on global governments and companies to create urgent change now. The UK defined contribution pension market is worth an estimated £1 trillion and through campaigns such as Richard Curtis’s Make My Money Matter, is under increasing pressure to show its cards on the issue of manmade climate change.

What is PensionBee doing?

PensionBee has offered a Fossil Fuel Free Plan to customers since December 2020 and an Impact plan since February 2023. PensionBee’s Impact Plan only invests in companies having a demonstrable positive impact for people and planet.

PensionBee has publicly committed to publishing its carbon emission reduction targets this financial year, including scope 1,2 and 3 emissions, in line with the Paris agreement.

Since May 2023, PensionBee has been able to vote on behalf of customers at the AGMs of major global companies that are held within its pension plans, through asset managers BlackRock and State Street Global Advisors.

‘Voting Choice’ is offered in three PensionBee plans; the Tailored Plan, Tracker Plan and 4Plus Plan. Under Voting Choice, PensionBee has the ability to vote using a voting policy from Institutional Shareholder Services (ISS), a global proxy voting provider. PensionBee selected this voting policy as it best aligns with our customers’ interests and expectations, which we collect annually via surveys and qualitative research. The Fossil Fuel-Free plan votes in accordance with asset manager Legal and General Investment Management’s voting policy, while the Impact plan follows the voting policy of the Blackrock Impact team.

Tips for pension savers thinking of moving their pension to a more sustainable plan

  • Check what your existing pension or old workplace pensions are invested in. Your pension might already exclude fossil fuel companies.

  • Decide if you are happy to keep your pension invested where it is currently or think about voting with your feet and moving it. Note that you could lose valuable employer contributions if you move an existing workplace scheme to a new provider, so check whether your current pension provider offers a more sustainable plan first and whether your employer might be willing to pay into a pension you have chosen rather than the existing workplace scheme.

  • You can move old defined contribution workplace pensions relatively easily. Consider what’s important to you in terms of your values as well as things like how much risk you can take with your pension investments and how close you are to retirement. For instance, would a plan that excludes oil and gas companies be enough of a change for you, or would you prefer to only invest in positive impact companies?

Table 1: MSCI ACWI Fossil-fuel free index v. MSCI ACWI, to October 31 2023 (USD, annualised)

% Year-to-date 1 year 3-year 5-year 10-year
MSCI ACWI Fossil-Fuel Free Index 6.99 10.73 5.61 7.54 7.18
MSCI ACWI Index 6.75 10.50 6.68 7.47 6.81

Source: MSCI

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