The is widespread confusion among DC members about the concept of net-zero emissions, particularly in relation to how this relates to pensions.
Research by Legal & General Investment Managers found that one in pension savers had never heard of the term ‘net-zero’, while three in 10 can’t explain or understand the connection with their pension pots.
In total almost nine out of 10 DC members did not understand the importance having their pension scheme aligned to a net-zero goal.
However, despite the lack of awareness of the term net zero, when members were explained the meaning an overwhelming majority were in favour of their pension moving in this direction, according to LGIM. It found that 70 per cent of DC members prefer remaining invested and use their collective power to engage with companies to align their businesses with global climate change efforts, or prepare them to thrive in a the low-carbon economy.
Two-thirds (64 per cent) of all members have become more concerned about the impact of human actions on the planet following the Covid-19 crisis. Rather than de-prioritising environmental issues in favour of immediate concerns, the pandemic thrust them into sharper focus as members explicitly linked them with their current situation.
Millennials are the strongest supporters of engagement, with 79 pe rcent of them supporting providers’ stewardship activities. Their attitude also helps to explain their change of hearts toward outright divestment. While still the most radical cohort of the three generations on this issue, half of millennial members would consider divesting if it had no performance impact, while only two in five of them would divest no matter what.
LGIM co-head of defined contribution Stuart Murphy says: “It is understandable that members are not fully up-to-date with the latest trends and terminology, and it is important that we work to further educate, support and empower our member base on the role and impact of their pension savings on society.
“Pleasingly, a huge 70 per cent of DC members would prefer to remain invested and use their power to engage with companies. We are supporting this view through our Climate Impact Pledge engagement programme, which is incorporated directly across LGIM’s DC default funds, representing over 4mi members.”
He says this also aligns with LGIM’s pilot project with Tumelo, a platform that allows members to indicate how they would vote on the key issues associated with the companies they hold in their funds.
The research found baby boomers are twice as likely as millennials to want to keep pensions as diversified as possible, even if that meant investing in fossil fuels, but the proportion has dropped from 30 per cent to 25 per cent over the past 18 months.
The research also shows that more than a fifth of ‘Boomers’ (22 per cent) are now happy to divest into a greener pension regardless of performance. This follows increased coverage of climate in the mainstream media and real concern about the impact of climate change on their children and grandchildren.
Rita Butler-Jones, co-head of defined contribution at LGIM, adds:
“The pensions industry is undergoing a rapid change to adapt its products into active instruments against the looming climate crisis. These results send out an early warning message to pension providers and trustees.
“As Baby Boomers move steadily into their retirement years, the balance of power will shift as Gen X starts to hold the largest share of pension assets. Younger views will be an important factor in shaping the direction of travel over the next 10 years. This new cohort can no longer be assumed to be simply chasing maximum financial returns regardless of the impact on the planet.”
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