Sustainable investment: How your pension can help tackle climate change

Do you remember when you could smoke wherever you wanted? When you could take home your shopping in free plastic bags? Such unhealthy and unsustainable behaviours changed very quickly following the introduction of new regulations.

And we are set to see a similar, albeit more gradual, shift in the investment world as we move towards more sustainable investing.

European Union legislation, currently being finalised, is due next year. Designed to promote responsible investment, it should be welcomed by the growing number of people who want their savings and pensions invested in companies in the sustainable economy – those that are environmentally and socially responsible.

Under this new legislative framework, financial advisers will be obliged to ask clients about environmental, social and corporate governance (ESG) preferences and, for those who are interested, they will need to provide a sustainable investment option.

This is not designed merely to be a box-ticking exercise. And to prevent that, advisers will have to clearly document their process and be able to evidence why certain clients did not select the sustainable investment option.

The expectation is that this will result in the evolution of a paradigm shift for the investment industry towards more sustainable investing.

So, what exactly is it? Under sustainable investment, a key principle is that the fund manager responsible for investing your money will base his or her decisions not just on what they think will make the most money, but will also consider the broader context of ESG.

Shane O’Brien is a senior investment director at Aviva

For example, when looking at investing in stocks and shares, they will consider how the company interacts with the environment, with staff and local communities and whether they have diversity at a board level.

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In simple terms, ESG investing is about taking into account the broader implications an investment may have on our climate, so expect more investment in wind farms and less in coal companies.


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