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Pension savers turning to ESG, says AJ Bell

7 December 2020

Almost half (47%) of AJ Bell Youinvest customers plan to invest more of their pension in companies with a positive environmental impact in 2021.

Furthermore, 44% of savers believe their pension savings can be used to protect the environment, with over a third (34%) stating that they would increase their pension contributions if they thought it would be good for the environment.

Among those surveyed, 32% said the environment was their most important ESG consideration, followed by corporate governance (11%) and societal impact (6%).

Tom Selby, senior analyst, AJ Bell, said: “While investing in a pension is, of course, primarily about building a pot of money to fund your lifestyle in retirement, it is clear there is significant appetite to invest this money in a socially responsible way.

“Given the UK’s total pension wealth amounts to over £6 trillion3, it is possible this shift in behaviour will play a fundamental role in tackling the climate crisis.

If hundreds of billions of pounds of money starts to flow to companies which take their environmental responsibilities seriously, more firms will inevitably place this at the top of their corporate agendas.

“The cold hand of capitalism – and in particular widespread industrialisation throughout the 20th Century – has undoubtedly played an enormous role in damaging our environment and warming our planet. But through our investments, it could also hold the key to dealing with some of the problems it has caused. It is entirely possible that pensions will, eventually, help save the world.”

Despite this, a separate survey commissioned by AJ Bell discovered that one in three people believe investing in a socially responsible way will lead to lower investment returns. The belief was more widely held by men (41%) than women (23%).

Just under a third (31%) of those surveyed said they would accept a 1% to 5% reduction in investment returns, while a further 17% would accept a 5% to 10% drop.

However, AJ Bell hailed the idea that investors would have to forego returns as a “myth.”

Selby added: “The available evidence suggests the idea of a trade-off between returns and investing in a socially responsible way is a myth. In fact, AJ Bell research of funds in the IA UK All Companies and IA Global sectors found the average UK All Companies ethical fund has outperformed the FTSE All Share by 40% over the last 10 years.

“It has also outperformed the average non-ethical fund by 23%. The top performing ethical fund over 10 years is Royal London Sustainable Leaders trust, which has returned 196%, compared to 64% from the FTSE All Share.”

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