Clare Reilly, head of corporate development at PensionBee, highlights that the current economic challenges may prompt individuals to reassess their pension engagements. Following a noticeable downturn in their pension investments, many are likely to evaluate how their funds are allocated and the factors contributing to market fluctuations.
Reilly notes, “There is a significant lack of financial literacy among the population, leading to limited engagement with pensions—a recurring issue.” She emphasizes that many individuals may not have realized their pensions are tied to global markets; the recent downturns in indices like the S&P 500 and the FTSE 100 could serve as a wake-up call.
This shift in awareness could foster positive trends towards sustainable investing, enabling individuals to feel more empowered about their investment choices, similar to their decisions in retail environments. “If there’s a silver lining here, it’s that more people might engage with their investments and understand their financial journeys better,” Reilly suggests.
She continues, “The next step involves considering alternatives if they are dissatisfied with their current investments. People are increasingly proactive about removing unwanted elements from their purchasing choices, whether it’s food, clothing, or beauty products. Yet, this proactive mentality doesn’t always extend to their investments.”
### Divestment from Fossil Fuels
PensionBee has recently announced plans to launch a fossil fuel-free fund in collaboration with Legal & General, prompted by customer feedback questioning the inclusion of Royal Dutch Shell in their Future World Fund. This fund aims to respond to customer preferences—34% expressed a desire to exclude oil companies from their investment portfolios.
The Future World Fund, which promotes corporate transparency regarding carbon emissions, has faced skepticism from many customers who question the efficacy of its engagement strategies. “A significant number of our customers are doubtful about Shell’s commitment to carbon neutrality by 2050, suspecting it might merely be a facade while production continues unabated,” Reilly explains.
While acknowledging the entrenched nature of fossil fuel investments across the financial sector, Reilly emphasizes the importance of providing options for customers who wish to divest. “Transitioning to a zero-carbon economy is not instantaneous; it requires a gradual approach,” she states.
A major hurdle in sustainable finance is the complexity of supply chains and the lack of transparent data concerning a company’s environmental and social impact. Even within fossil fuel-free portfolios, indirect investments related to the industry are almost unavoidable. “This new fund will focus on excluding direct fossil fuel companies while employing the same engagement principles used in the Future World fund to address poor business practices,” Reilly notes.
### Willingness to Forego Returns
PensionBee’s research has uncovered a robust desire among customers to disengage from oil companies due to concerns over environmental impact and doubts about long-term profitability. The oil sector has faced a steep decline amid the COVID-19 pandemic, with prices plummeting below $30 per barrel as oversupply clashed with decreased demand.
However, some investors may perceive this as an opportunity to buy at a discount, banking on a future recovery in demand. Companies like ExxonMobil and Royal Dutch Shell have seen share prices reach multi-year lows, tempting traders looking for bargains. Despite this, according to PensionBee, many customers are prepared to entirely divest from oil, even at the cost of potential profits.
Reilly acknowledges the dilemma this presents, particularly in uncertain economic climates where safety and security are paramount. “We observe that many oil companies offer high dividend yields due to their profitability, which contributes to pension returns,” she explains. “Yet, there is a growing segment of the population willing to forgo those returns in favor of their values.”