Almost six out of 10 pension savers want their scheme to slash its exposure to fossil fuels, provided it does not impact performance, according to new research.
The survey by LGIM — of more than 4,500 savers — found significant differences between different generations. However, across the board it is clear that climate is now the priority for savers, with more than half (57 per cent) stating it is more important than Covid as an issue, up from 49 per cent last year.
In total 59 per cent of savers want their pension to significantly reduce exposure to fossil fuels — higher than the 51 per cent who stated this a year ago. Meanwhile, 62 per cent would like their pension to have a net-zero target so long as there is no impact on financial performance increased — up from 58 per cent last year.
Although there were some age differences, demand for a net-zero pension was almost as strong among older savers in decumulation (84 per cent) than those at the beginning of their retirement savings journey (87 per cent).
However, with inflation rising and the cost of living squeeze starting to hit, savers’ climate commitments do not come at any cost. The number who would divest from fossil fuels irrespective of financial returns has dipped by 7 per cent, to 25 per cent, since 2021. Similarly, the number who say they want their pension to have a net-zero target, regardless of performance fell from 30 per cent in 2021 to 25 per cent this year.
However, those who wanted their investments to remain as diversified as possible – targeting maximum returns, held steady at 16 per cent.
The research highlighted the disparities between generations when it comes to views on climate change and investment performance. Most respondents were keen to reduce their pension’s exposure to fossil fuels overall, but this figure falls as the ages climb, with 78 per cent of baby-boomers in favour, compared with nearly nine in 10 (89 per cent) of Gen Z respondents.
The gap widens once respondents are asked if they would pay more for a net-zero pension: 81 per cent of Gen Z workers say they are willing to pay more for a pension with net-zero carbon emissions, compared with less than half (48 per cent) of baby boomers in decumulation.
Older savers still need convincing that ESG risks can affect performance. When asked if they think pension funds which have a net-zero target will perform better in the long run, three-quarters of Gen Z agree, compared to less than half of baby boomers (48 per cent).
LGIM co-head of DC Rita Butler-Jones says: “This research demonstrates the challenges 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. While we are encouraged by the increased appetite for net zero pensions, 2022 has underlined that this isn’t at any cost. It is clear that savers’ see their pension’s main purpose as saving for their retirement.”
On the surface, Gen Z may seem like the generation more interested in ESG issues. However this is not always the case. Younger age cohorts are more heavily influenced by social media, divestment campaigns and pressure groups, with nearly 60 per cent of Gen Z (59 per cent) and Millennials (57 per cent) saying they would prefer to divest, rather than engage, because of the things they have seen in the media. This compares to just over four in 10 of the baby-boomer generation. (43 per cent).
However younger generations are also happier to stay invested in companies with strong peer-group brand recognition, even if they have a poorer ESG track record. For example, the percentage of 18-24 year olds keen to take an engagement rather than divestment approach with Boohoo, having explored their supply-chain and working practices in a case study, is over double that of those in the 64+ age category (31 per cent versus 14 per cent).
Stuart Murphy, co-head of DC at LGIM adds, “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. 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 and believe an active ownership approach is central to effective engagement with our investee companies.”
