Employee pressure for green pensions outpacing employer action, survey finds

Research shows that pension schemes run by UK-based councils collectively hold £16bn of investments in the fossil fuel industry.

Conducted by Scottish Widows as part of its partnership with the Make My Money Matter campaign, the survey polled 2,000 UK-based adults who were either employed or looking for work, as well as the HR managers of 750 businesses.

The survey found that four-fifths of workers believe it is important that their employer takes an “active stance” to tackle climate-related issues and to improve its performance across the broader environmental, social and governance (ESG) sphere.

When the workers were asked what the best benefits an employer could provide were, the top answers were flexible working, support with the current cost-of-living crisis and a good holiday package. However, more sustainable personal finances came in at a close fourth and were cited by almost one-quarter (24%) of those polled.

The majority (72%) of workers said it was important for their employer to invest their savings in an environmentally sustainable way.

Despite this, three-quarters of HR managers claim that their organisation does not have in-house knowledge of green pensions. More than one-third (37%) said they have either never heard the term ‘green pension’ or do not know anything about what this entails.

Awareness of the growing demand for pension funds which avoid investment in high-emission industries and projects among HR managers was found to be growing more rapidly than awareness of the other things needed to make a pension truly sustainable. In other words, climate action was seen as a core part of green pensions, but social and governance outcomes were not.

This lack of knowledge is reflected in the fact that one-third of employers do not currently offer a sustainable pension scheme to their employees.

“Today’s workers expect employers to show true leadership and offer pensions which are invested responsibly,” said Scottish Widows’ head of responsible investments Maria Nazarova-Doyle.

“Demonstrating a genuine commitment to ESG priorities is not only the right thing to do for the planet, but it could also be a game changer for attracting and retaining the best talent. Business leaders have a real opportunity to show staff that they are serious about doing the right thing.”

TCFD requirements

Earlier this week, the UK Government made it mandatory for pension schemes of £1bn or more to report annually on their climate risk in line with the framework of the Taskforce on Climate-Related Disclosures (TCFD).

TCFD-aligned reporting has been mandatory for the nation’s largest pension schemes, of £5bn or more, since October 2021. It has also been mandatory for other, large players in the finance sector since April 2022.

TCFD-aligned reporting requires organisations to outline how they are quantifying physical and transition risks, and the governance mechanisms they are putting in place to ensure proper, joined-up responsibility for minimising this risk. The framework also includes scenario analysis, a requirement for organisations to measure risks in a range of future warming scenarios, including those agreed upon as targets by UN member states through the Paris Accord.

Nest, one of the UK’s largest pension schemes, published its first TCFD-aligned report last week. The £24bn scheme used an ‘orderly transition scenario’ and a ‘disorderly transition scenario’ to assess risk, as well as a scenario in which there is no further low-carbon transition.

In the disorderly transition scenario, £71bn is wiped out over 30 years. The loss within the same timeframe in the no transition scenario is £50bn. In the case of an orderly transition, the scheme sees an addition of £89.5bn.

Action inspires action. Stay ahead of the curve with sustainability and energy newsletters from edie