Savers increasingly focused on returns over climate amid rising inflation

Pension savers consider climate change more of a priority than Covid-19, although they are less willing to risk financial returns for climate commitments amid the rising of cost of living, according to analysis from Legal & General Investment Management (LGIM).

The firm’s research found that climate was considered more of a long-term priority than Covid-19 for 57 per cent of savers, up from 49 per cent in 2021, with the number of respondents unaware of the term net zero also falling from 25 per cent to 17 per cent.

The number of savers wanting to significantly reduce their pension’s exposure to fossil fuels also increased by 8 percentage points to 59 per cent, whilst the proportion of savers who would like their pension to have a net-zero target so long as there is no impact on financial performance rose from 58 per cent to 62 per cent.

However, LGIM suggested that rising inflation and cost of living concerns may have dampened savers appetite for climate commitments regardless of cost, revealing that the number who would divest from fossil fuels irrespective of financial returns has dipped by 7 percentage points since 2021 to 25 per cent.

In addition to this, the number of savers who want their pension to have a net-zero target, regardless of performance, fell from 30 per cent in 2021 to 25 per cent.

LGIM co-head of DC, Rita Butler Jones, highlighted the findings as demonstration of the challenges defined contribution (DC) savers are facing amidst the complexities of the current economic environment.

“It underlines the role providers have to play in reassuring clients about their savings in volatile times,” she continued,

“While we are encouraged by the increased appetite for net-zero pensions, 2022 has underlined that this really isn’t at any cost. It is clear that savers’ see their pension’s main purpose as saving for their retirement.”

There were also disparities between generations, as whilst most respondents were keen to reduce their pension’s exposure to fossil fuels overall, this figure fell from 89 per cent amongst Gen Z respondents to 78 per cent of Baby Boomers.

The gap also widened when considering if respondents would pay more for a net-zero pension, as 81 per cent of Gen Z workers were willing to pay more for a pension with net-zero carbon emissions, compared with less than half (48 per cent) of Baby Boomers.

This is perhaps unsurprising, as the research suggested that Baby Boomers still need convincing that ESG can affect performance, revealing that 48 per cent of older savers think schemes with a net-zero target will perform better in the long run, compared to three-quarters of Gen Z.

The firm also suggested that younger savers are more heavily influenced by social media and campaign groups, revealing that 59 per cent of Gen Z and 57 per cent of Millennials are more likely to want to divest, rather than engage, because of the things they have seen in the media, compared to 43 per cent of Baby Boomers.

However, it found that more than double the number of 18-24 year olds would be keen to take an engagement rather than divestment approach with a brand with strong name recognition than Baby Boomers.

In particular, around 31 per cent of younger savers would be keen to engage with retailer Boohoo, having explored their supply-chain and working practices in a case study, compared to 14 per cent of those aged over 64.

Commenting on the findings, LGIM co-head of DC, Stuart Murphy, added: “It is clear that savers are engaged but there is a gap between the issues and companies they care most about. The DC market is moving towards increased member engagement and savers are more and more interested in the companies they invest in through their pension.

“The move to an expression of wish and split voting, where savers get to give their views or potentially vote on companies, will see this change even further.

“Our research draws some interesting conclusions and it is positive to see a broad members preference for engaging with companies, rather than always opting for divestment.

"We see that as a last resort when it comes to engagement, and believe an active ownership approach is central to effective engagement with our investee companies.”

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