Ethical investing breeds change
I believe the best way to enact change is to vote with our wallets.
I feel strongly that one of the best ways we can all bring about meaningful change is by making ethical decisions when it comes to our investing.
I would argue that changing the fund our pension is invested in is a low effort, high impact way to do that.
You are an investor, whether you like it or not
This is a topic that is applicable to everyone.
Regardless of whether you invest your post-tax income, nearly all of us have a pension (if you don’t, you should!) and that pension is invested (if yours isn’t, it absolutely should be).
>> Read More: A FIRE (Financial Independence Retire Early) Guide
88% of adults in America will have retirement savings by the age of 60 (Statista, 2023). All that capital can be used to enact change in the world.
For most people, their 401(k), or similar pension product, is the biggest contribution to the financial system and it may well contain most of their net worth.
Yet most people could not even tell you what their retirement money is invested in. Which means it will likely be in the default fund your company has chosen.
If you care about the environment, you should want to know who has your pension money whilst you wait to access it in retirement.
Who are you funding with your pension money? Your money may be going directly towards ventures that are destroying our ecosystem.
The default fund you are likely pouring your retirement funds into will naturally invest in most of the largest corporations in the world, many of which are unethical or polluting.
By keeping your pension invested in the default fund you are supporting these companies with your wallet, whether you know it or not.
Corporations are undoubtedly one of the biggest causes of climate change. But simply not buying a corporation’s product or services is not enough. They care far more about their shareholders than their end customers.
As someone who has a pension, you are a shareholder.
Ignorance to the world of investing is not an excuse
The first barrier to the masses making this change is financial literacy.
Indeed, the financial services industry makes it difficult for the average person to understand their own pensions and investments. Our ignorance is what makes them money.
But my argument is that ignorance as to how pensions & investing work, is simply not an excuse.
Despite their efforts to confuse us, it is very easy to learn about investing, fund choices, and charges (we have a starter guide here).
You should not be paying someone (like a financial advisor or investment services company) to do this for you in 99% of cases. You will be charged heavily in fees, both from your advisor and the portfolio selection they choose for you.
You need to do it yourself.
Actively engaging with your retirement investments, no matter how small, can have a far bigger impact than any other eco-gesture you might be making in your daily life. And it can take far less effort, too.
Performance of ESG/sustainable funds & your retirement
Financial literacy is certainly a key barrier to most people making this simple change. But performance (how much money will be in my pension when I retire) will be another.
The good news is you can make ethical choices and still see your pension pot grow at the same rate as you would have if you did nothing. Making this ethical choice with your investing & pension may provide the same performance overall.
More than that, you may even be richer, having done it. A Morningstar report has shown us that sustainable funds can even outperform conventional ones.
As we become more socially conscious, this may well continue.
Why? When corporations see that investors are giving their money to companies who go green, they are incentivized to go green quicker.
When their customers choose them over a competitor because of their green stance, the profits of these companies rise.
This causes more investors to join and the share price to rise further, causing your pension pot to grow.
It is a snowball effect.
As investors see their fellow investors shifting towards sustainable companies, it will attract more investors.
There are no guarantees in the investing world and know that performance can and will vary. But if we allow corporations to continue polluting at their current rate, there is a science-backed guarantee of climate catastrophe.
I would urge you to vote with your wallet when choosing where to invest. Your pension fund is a great place to start.