“Oh my god – I’m actually destroying the planet by having my money invested in bog-standard pension funds.”
The realisation smacked me in the face like a frying pan out of some Tom and Jerry cartoon sketch. This was back in 2018, and I had just been introduced to the concept of “impact investing”. In other words, how individuals can create change through only investing in companies that have a positive social and environmental impact on the world, while making a decent financial return.
The difference this can make is huge. For example, moving just £20,000 from a traditional pension or investment fund to a typical impact portfolio can reduce carbon emissions by 16 tonnes per year. That is the equivalent of taking three petrol cars off the road. And this is just the carbon impact. These kinds of investments also help to fund the use of renewable energy, recycling processes, water purification and a whole host of other social improvements, including lifting people out of poverty, providing access to clean water, medical interventions and disease prevention.
Consider this. Now consider how, according to the ONS, total private pension wealth in the UK is £6.1 trillion. This is a very big number, so why don’t we just use our collective power to shift the very basis of capitalism? In doing this, it could transform from the force for destruction that it currently functions as to a force for good.
These days, many individuals have a workplace pension – but what some may not realise is that they have a say in what happens with it. Through applying pressure to company management and speaking to pension providers, the money can be invested in funds that have a decent impact and ethical measurements.
Some might have their own personal pensions and therefore more influence with their financial advisers. To those people, I ask: what is your excuse? It’s time to pay attention to what your money is doing and whether it is making a change. This subject can be viewed as boring and complex – but when impact investing is as easy as it is, the benefits are all the more rewarding. Through choosing to better the world through your finances, you’ll not only begin to understand how much you have in your pocket, but you could also see a better return than conventional investment.
Returning to my pan-in-the-face epiphany, it was not just my pension that was the problem. As a financial planner with 30 years’ experience under my belt, the pension I had to my name was modest. Instead, the bigger problem lay with my responsibility for influencing the nine-figure sums of other people’s pensions and investments.
I knew that one pension in isolation may be small but a number of pensions together can influence a whole financial advisory practice; a number of financial advisers can influence the fund management industry; and, in turn, the fund managers can influence the behaviour of the businesses they are prepared to invest in. With that, the trajectory of capitalism – as one of the most potent forces in the world – can influence the future of the planet in a very meaningful, and crucial way.
David Macdonald is founder of The Path (thepath.co.uk), a financial advisory firm
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