'Overwhelming majority' in favour of net-zero pensions despite low awareness

Around nine in 10 defined contribution (DC) savers do not understand the importance of having a net-zero aligned pension, with one in four savers never having heard the term before, according to research from Legal & General Investment Management (LGIM).

The survey from the provider also revealed that a further 31 per cent of savers had heard of the term, but could not explain what it means or its connection with their pension pot.

However, despite the lack of existing awareness, members who were explained the meaning showed an “overwhelming majority” in favour of moving their pension towards net-zero.

Indeed, 70 per cent of savers stated that they would prefer to remain 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.

The strongest support for engagement was found amongst millennials, with 79 per cent of this subset supporting providers’ stewardship activities.

Furthermore, whilst millennials were the "most radical" generational cohort on the issue of divestment, half of millennial members would consider divesting if it had no performance impact, whilst only two in five would divest no matter what.

Millennial men were found to be the most likely to want a net-zero pension irrespective of the impact on financial proportion, with 40 per cent supporting this view, double the 20 per cent of female baby boomers who feel the same.

Other generational differences were also highlighted, as baby boomers were found to be twice as likely as millennials to want to keep pensions as diversified as possible, even if that meant investing in fossil fuels.

However, the proportion backing this sentiment this has dropped over the past 18 months, falling from 30 per cent to 25 per cent.

In addition to this, 22 per cent of baby boomers stated that they would now be happy to divest into a greener pension regardless of performance, following increased coverage of climate in the mainstream media and concerns over the impact of climate change.

More broadly, the survey revealed that over two thirds (64 per cent) of members were more concerned about the impact of human actions on the environment following the pandemic, with Covid-19 having “thrust” environmental issues into sharper focus.

LGIM co-head of defined contribution, Rita Butler-Jones, highlighted the results as an "early warning message" to pension providers and trustees, emphasising that the industry is undergoing "a rapid change to adapt its products into active instruments against the looming climate crisis".

"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," she continued.

“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.

Adding to this, LGIM co-head of defined contribution, Stuart Murphy, said: “We have always considered ESG to be a financially material consideration and this research shows that our members agree, with the majority in favour of their pensions moving to net zero.

“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.

“A greater engagement on these matters can instigate a virtuous circle, whereby members’ increased contributions provide more firepower to our stewardship efforts to create better outcomes for society as a whole.”

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