Bonus episode: “Your pension can make a difference in the climate emergency”

The following is a transcript of a bonus podcast episode of The Pension Confident Podcast. Listen to the episode, watch on YouTube or scroll on to read the conversation.

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PHILIPPA: Hi, welcome back to Behind the Pensions. This time we’re going to hear from James, who wants his pension to work not just for him, but for the planet too.

JAMES: If you want to - do want to start making a difference in terms of the climate emergency, where your pension is [invested] can make quite a big difference.

PHILIPPA: So right now we’re seeing COP31, that’s the global environmental conference, it’s happening in Turkey. Perfect timing for James. He’s a Software Engineer from Sheffield. He wanted to tell us why he’s invested in a pension plan with a focus on the climate.

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Meet James

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JAMES: Hi, I’m James. I’m 54 years old. I live in Sheffield in South Yorkshire, and I work for a charity in the technology side, working with all the different various systems that we have. And I also work freelance as a Software Engineer. When I got my first job out of university, I was very fortunate in that it had a pension that came along with it. But once I left that job, in my next job, I didn’t take up the pension offer there. When I decided to set something up, I did it on my own and tried to make my way through the complexities of the language that was used and is still used around pensions.

I also was becoming more conscious of issues around the environment and where ethical investments, where my money was being invested. I knew right back then when I chose those initial funds that I didn’t, for example, want to fund the weapons industry, for example. But once I realised the talk about the Climate Plan, it was obvious to me that although there was potentially a cost to that financially in terms of more ethical investments don’t always perform as well as war or fossil fuels and oil, I decided that I’d shift across to that plan.

If you want to start making a difference in terms of the climate emergency, where your pension is based is something that for most people should be relatively easy to do and can make quite a big difference if we all start sending messages to the polluters that we want, we want change.

PHILIPPA: Now pensions expert, Dan Stean, from PensionBee was listening to that with me. Hi, Dan.

DAN: Hi, Philippa.

PHILIPPA: So, James, he really wanted to invest in something climate-friendly, which is great, but how much of a difference is that really going to make to the climate crisis?

DAN: So not investing in fossil fuels, for example, is one of the most effective things you can do. There was a campaign a few years ago from Make My Money Matter which called this “greening your pension”.

PHILIPPA: OK.

DAN: They found that doing so cuts your carbon footprint at 21 times more than going veggie, giving up flying, and switching your energy providers combined. So quite a large amount.

PHILIPPA: That’s compelling, isn’t it?

DAN: Very. That research is still up on their website, if listeners wanted to dig into the details. That’s Make My Money Matter.

PHILIPPA: So obviously that’s great, but our money, it does need to work for us, doesn’t it? So, what about investment performance? Listening to him talk, he does seem to have priced in the expectation of a lower return, doesn’t he? Is that always going to be the case if you go for a climate plan?

DAN: [It’s] not necessarily true that sustainable funds perform worse than traditional ones.

PHILIPPA: OK.

DAN: For example, over 10 years to 2019, Morningstar found that 59% of surviving sustainable funds across seven categories beat their average returning traditional peer. That continued in Q1 of 2020 when the COVID-19 pandemic hurt oil and gas companies quite a bit, whereas sustainable funds were better positioned in that situation.

PHILIPPA: OK. I mean, obviously very particular circumstances, aren’t they? Do you want to give us an example?

DAN: Yeah, of course. So, in the longer term, from December 2018 to June 2025, $100 invested in sustainable funds would’ve returned you $154. For a traditional fund, that would be $145.

PHILIPPA: OK. And we’re going to say that thing we always say about past performance, right?

DAN: Yeah. So past performance doesn’t indicate future performance, and it might not always be this way, but it shows that you don’t necessarily have to compromise on returns with sustainable funds.

PHILIPPA: Yeah, which is interesting, isn’t it?

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PHILIPPA: Your pension isn’t going to sort itself out. Subscribe to The Pension Confident Podcast, let’s get into it.

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What’s ‘green’ these days?

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PHILIPPA: I’d say choosing sustainable industries and companies, that’s not always as straightforward as you might think, because the world changes fast, doesn’t it?

JAMES: One of the things that, I think, over the last few years has changed has been the developments around Large Language Models (LLMs) and [Artificial Intelligence] (AI). Certainly, I know that the Climate Plan is quite heavily invested in technology companies at the moment.

And I think at some point we need to start to think, “Hang on a second, if we’re investing in Microsoft, in Apple, in Meta, in Google, in Alphabet, in NVIDIA. These companies at the moment are throwing out their net zero plans because of the race for supremacy in terms of AI”. And we need to think a bit more actually about, it’s all very well [to say] “let’s not invest in fossil fuels”, but actually, are we feeding this hype cycle around AI? Which we know is taking up land, we know the water uses are much higher. We need to be smarter on that if we actually want to have a world worth living in 20, 30 years’ time.

PHILIPPA: Now, I thought that was a really interesting point. What used to be green, or look green, might not be as green as it looks these days. So, you do need to do your homework, don’t you, if you’re thinking about this?

DAN: 100%. You need to do your homework on where your pension is invested and checking the underlying investments and watching out for ‘greenwashing’. So, definitions of what’s environmentally friendly are quite personal -

PHILIPPA: yeah -

DAN: to each person. One person might think that tech companies are very good for that, whereas the person on the complete other end might disagree, which is what James sounds like.

PHILIPPA: Yeah.

DAN: You can check what a climate-friendly plan or fund invests in. So, for example, you can look at the factsheet of any plan that you’re usually invested in. For example, PensionBee plans, including the Climate Plan, which James has mentioned, you can see the top 10 holdings for that and see where it’s invested.

It’s also super important to keep greenwashing in mind, I think, regardless. That’s where companies or funds pretend to be more ethical or environmentally friendly than they actually are, and that’s to attract people’s investment.

PHILIPPA: Yeah, so the lesson again is to drill down into exactly what the fund is invested in.

DAN: Yep, do your homework and you can see quite easily what funds are invested in each plan.

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Staying active in retirement

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PHILIPPA: So, everything James has talked about is to do with looking after the future of the planet, but what does his future look like?

JAMES: So, when I’ve more time on my hands, whether that’s either by actually taking - drawing down some money or actually fully retiring, there’s a whole list of things, unfinished projects and ideas and things that I’d like to do. I’d like to climb all the Munros in Scotland, which are the mountains over 3,000 feet. And I’ve done 119 of those, there’s 282 to go. So I’d like to do that before I get too old because they’re, they’re a fair old challenge to do.

Me and my wife as well would like to spend some time on a narrowboat travelling around England and Scotland and Wales, exploring the waterways at a sedately three or four miles an hour. And we’ve got a dog who always needs more walking. So, if nothing else, the Peak District is on our doorstep, and spending a bit more time outdoors walking with the dog will be a lovely thing to do.

PHILIPPA: It does sound pretty lovely, doesn’t it? Thank you very much, Dan, for your expert insights.

DAN: Thank you, and on James’s point, you’d not catch me doing all of those walks.

PHILIPPA: Oh no, not for you? Well, we all like our own retirement plan. Thanks also to James for sharing his story with us.

Stay tuned for our next episode where we’ll be joined by a panel of experts to reveal the hidden cost of financial infidelity. And if you’ve missed an episode, don’t worry, you can catch up anytime on your favourite podcast app, YouTube, or of course, if you’re a PensionBee customer, in the PensionBee app too.

Here’s a reminder before we go: anything discussed on the podcast shouldn’t be regarded as financial advice or as legal advice, and when investing, your capital is at risk. Thanks for being with us. We’ll see you next time.

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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.