PensionBee notes that in recent years, the spotlight has intensified “on the role of investments in the climate debate.”
As most consumers would hopefully know by now, ‘ESG‘ stands for Environmental, Social, and Governance.
This is a framework used to “measure a company’s sustainability, workforce and ethical practices.” Many companies have ESG ratings, which could “help consumers make informed choices.”
It is well accepted that savings, “including pensions, can help shape a sustainable future.”
Sustainable investing considers ESG factors “alongside financial returns.”
It has gained popularity, but also “criticism of ‘greenwashing’.”
This is the practice of including companies you “wouldn’t expect to find, such as an oil company, in a “green” fund.
Greenwashing threatens consumer trust and “undermines the integrity of the sustainable investing market.”
In response to the growing threat of greenwashing, the UK’s Financial Conduct Authority (FCA) implemented comprehensive measures in October 2022 to “combat this issue.”
This signaled a clear commitment “to protect consumers and promote transparency.”
As noted by PensionBee, in early 2024, the FCA plans to introduce the following measures.
- An anti-greenwashing rule for all authorised firms to make sure sustainability-related claims are fair, clear and not misleading.
- Product labels to help investors understand what their money is being used for, based on clear sustainability goals and criteria.
- Naming and marketing requirements so products cannot be described as having a positive impact on sustainability when they don’t.
These measures are designed to “help consumers make informed decisions. This means businesses must be able to back up their claims with evidence.”
In November 2023, the FCA opened up “a further consultation on one of these measures, the anti-greenwashing rule. The remaining proposals will come into effect from December 2024.”
To be labelled as a green investment under the FCA’s new rules, an investment must meet all of the following criteria:
- have a clear and measurable environmental or social benefit;
- be aligned with sustainable investing principles; and
- be managed by a money manager who has a strong plan for making environmentally and socially responsible investments.
The impact of the FCA’s actions
Concerns over climate change have “fuelled demand specifically for impact investing among pension savers. Our research found that some future retirees could be at risk of homelessness due to climate change. Retirees may need an extra £25,000 in retirement savings to pay for climate-related food costs.”
The PensionBee Impact Plan
In February 2023, PensionBee launched the Impact Plan – which is described as being one of the most ambitious attempts “to make impact investing accessible to mainstream savers in the UK market.”
There are many international companies “tackling global issues, while generating long-term investment returns.”
The Impact Plan only invests in these companies, “helping you save for retirement.”
The Impact Plan was created in partnership “with one of the world’s largest money managers, BlackRock.”
It was driven by feedback from customers in the Fossil Fuel Free Plan who “expressed a strong interest in developing further exclusion criteria in July 2021.”
The Impact Plan goes a step further, only investing “in companies that support underserved communities and tackle unaddressed challenges.”
This helps improve lives and creates “a better planet for us all.”
The impact of these companies on people and the planet “can be measured, so you know they’re contributing to real change.”
Increasingly, young people are choosing “to balance generating positive returns with prioritizing important environmental and social issues.”
PensionBee claims it has seen this first-hand with their customer base: younger savers are more likely to be “invested in one of our socially responsible plans.”