According to Make My Money Matter, making your pension green can be 21 times more effective at cutting your carbon footprint than giving up flying, becoming vegetarian, and switching your energy provider.
What is a Green Pension
A green pension is a pension fund that prioritises sustainability in their investments, investing in companies that align with this goal and typically avoiding or reducing investments in environmentally harmful sectors such as fossil fuels. Make My Money Matter outlines 4 key areas which make a pension green:
- Having a commitment to reaching net zero across the entire portfolio of pension assets before 2025
- Investing in solutions to help tackle the climate crisis, such as renewable energy or biodiversit
- Engaging with and voting against poor performing investee companie
- Removing investment from companies which are not serious about reducing their emissions
Why Haven’t More People Gone Green?
A government survey found that consumers reported finding it hard to engage with and manage their pensions due to:
- A tendency to stick with the status quo
- A lack of confidence, and a fear of damaging their finances
- Not knowing how to manage their pension (1 in 4 respondents cited this reason)
- Loss aversion
- A lack of time or energy
As a result of the above, 96% of those in direct contribution master trusts or multi-employer schemes stick to the default option that their employer opted them in to.
A YouGov survey found that when it comes to green pensions, it can be even harder to engage consumers, finding that 80% of pension holders had never considered that their pension contributions could be linked to global warming. They also found that pension holders tend to view their pensions as fundamentally financial, rather than environmental, products.
It can be difficult to access or understand information about green pension funds. Scottish Widows’ Responsibly Invested Pensions Report 2025 found that 25% of employee respondents cited a lack of information about the costs and benefits of responsible pensions as a barrier. They also found that 47% of financial advisers surveyed stated their clients perceive responsible investments as delivering lower returns, and 33% said their clients doubt the credibility of responsible investment claims. Their report also revealed that although 69% of UK employers now offer a responsibly invested pension, only 44% of them have it as their default option, and 61% of employees don’t know how to switch their pension.
What being ‘green’ means might also differ from one person to another. Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown questions, “Are you looking for investments that exclude companies which contribute to environmental challenges, or do you want to be invested in a way that engages with these companies to push them to do better?”
Greenwashing
The rise in socially responsible investing has unfortunately also led to a rise in ‘greenwashing’, wherein a product claims that it is more sustainable than it actually is.
However, the Financial Conduct Authority’s (FCA) Anti-Greenwashing Rule, made effective on 31st May 2024, now requires all FCA-regulated firms to ensure that any claims of sustainability regarding their products and services are clear, fair, and not misleading. Any claims of sustainability must be accurate, with evidence to prove it, and must take into account the product’s full life cycle.