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Green pensions: How to use your retirement funds to help the UK hit its net zero carbon emissions

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Blocking motorways may not be the preferred way to combat climate change for most of us – but using your pension can provide a more low-key but effective option if you want to take action against carbon emissions.

Experts have warned that climate change means more than just extreme temperatures. Climate Just, a tool to map climate change poverty, estimates that food costs could rise by 9 per cent by 2050 or as much as 28 per cent if the effect of climate change is greater.

Pension provider PensionBee says this would hit retirees hardest. Here is how you could use the power of your pension to help the UK hit its net zero carbon emissions targets and hopefully reduce your costs in retirement.

Make use of your workplace pension

Don’t just accept the default fund when you are auto-enrolled into your workplace pension.

“Read the literature to find out where your pension is invested,” says Julian Parrot, a partner at advisory firm Ethical Futures.

“Search for an ethical alternative and don’t just opt out because you don’t like the default. Make a fuss and ask your boss to consider a more sustainable option.”

Look under the bonnet

There are plenty of funds with sustainable or environmental, social and governance (ESG) labels but there is no standard definition of what this means and providers have different approaches.

“Most companies will offer a list of sustainable funds,” says Jeannie Boyle, chartered financial planner for EQ Investors.

“Ask to see the companies the fund invests in to see how ‘green’ these actually are.”

Invest to make a positive impact

Many sustainable-focused funds rely on third-party ESG scores to choose companies, which tend to focus on the sector a firm operates in.

But David MacDonald, of advisory firm Path Financial says this often misses companies that are making a difference and helping with the transition to a decarbonised economy through impact investing.

“Ethical or ESG funds only tend to screen out the worst offenders and often only the so called ‘sin stocks,’ he says.

“A more positive approach looks at funds that invest in companies whose products and services are the solution to the world’s problems.”

The DIY approach

Control your own retirement pot and invest in environmentally friendly or sustainable stocks through a self-invested personal pension (Sipp). Alternatively, robo-wealth managers such as Nutmeg and Wealthify offer ready-made risk-rated sustainable and ethical-focused portfolios. You can also invest in renewable energy projects through a Sipp with crowd bonds platform Abundance. Make sure you do your research.

Climate apps

Use apps such as Tumelo and Sugi to discover where your fund is invested and measure the carbon impact. Tumelo lets investors check which companies are in their pension and flag issues of concern directly to their provider. The Sugi app uses ESG data from Trucost to show your pension’s carbon impact and compare it with others.

Research tools

It can be time consuming to find a fund that reflects your sustainable values. Websites such as Fund EcoMarket and Good With Money can help you find funds based on specific environmental, sustainable, social and governance themes so you can understand and control where your money is invested.

Get active

Put pressure on your pension provider to go green through the Make My Money Matter campaign. It claims that switching to a green pension is 21 times more powerful than giving up flying, becoming a vegetarian or switching energy provider. Find and contact your scheme provider through the Make My Money Matter website.

Prepare for grey areas

ESG and sustainable fund managers may exclude certain stocks due to their use of fossil fuels such as oil companies but others maintain a stake so they can try to influence change.

Julia Dreblow, of ESG information platform SRI Services, which runs Fund EcoMarket, says it is important to both redirect money towards sustainable companies and encourage existing polluters to change their ways.

“There are always grey areas,” she adds. “No company, or person, is perfect, so there are often trade- offs and judgement-based decisions to be made.”

‘The world will look different’

Hannah Galliers, 30, production accountant, Gloucester

Ms Galliers already does her best to live sustainably by recycling regularly, using shampoo and conditioner bars instead of single-use plastic bottles and opting for a green energy supplier.

She took the opportunity to do the same with her investments when she consolidated her pension pots two years ago. Combining her retirement pots with PensionBee gave her the opportunity to move her money into the online provider’s Fossil Fuel Free Fund, which excludes fossil fuel producers, tobacco companies and weapon manufacturers.

Hannah says she is confident her sustainable-focused pension will perform better in the longterm due to the shift towards a decarbonised economy. “The world and the economy will look very different when I retire,” she says.”