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Pension Contributions Would Be Voluntarily Increased if Funds Were Used for ESG Investments

Research from Gresham House, the specialist sustainable investment manager, has revealed that 60 per cent of people in the UK are at risk of having a sub-standard of living in retirement due to low pension contributions. To ensure more people put aside money for retirement, the government and pension providers must highlight the benefits that contributing can have. 

According to Gresham House, 69 per cent of 16- to 35-year-olds said they would support their pension fund adopting a place-based impact investing approach. This would be where their savings are invested into companies, assets and infrastructure that directly address the biggest environmental and social challenges facing the UK. For example; regional disparity, biodiversity loss, and food insecurity.

Peter Bachmann, managing director of sustainable infrastructure at Gresham House
Peter Bachmann, managing director of sustainable infrastructure at Gresham House

Peter Bachmann, managing director of sustainable infrastructure at Gresham House, said: “UK pension contributors want change. They want to see their money drive positive impact, closer to home. It’s no surprise to see this coming through so strongly from the younger generations. Purpose is a driving force in the decisions they make, and pensions are no different.

“UK employees need to be saving much more each year to ensure a comfortable retirement. These findings show pensions providers what they can do to make that happen.”

Driving local impact

A third (30 per cent) said they would even increase their pension contributions if they knew their investments were being used to drive local impact. Almost half said they would want to see those investments directly benefit the environment and their local community respectively.

Some investors, including Gresham House, are already focusing on such sustainable investment strategies. Local government pension funds are already active in this area, but it is yet to be adopted widely by institutional pensions providers.

Currently home to the savings of more than half of British working-age people, the UK’s Defined Contribution (DC) pension market is the dominant form of pension in the UK and is valued at over £500billion. In line with the Chancellor’s Mansion House Reforms, re-allocating just five per cent of these funds to private, UK-based investment opportunities, could unlock over £50billion of investment by 2030. Consequently, this could significantly increase positive impact on local projects.

Bachmann continued: “Fixing our biggest challenges – whether environmental or societal – will require innovative new solutions. Alongside the Chancellor’s newly unveiled plans to deliver the Mansion House Reforms, these findings highlight that the demand is there for a new approach – one that provides returns for contributors, as well as driving solutions for some of the critical challenges facing the UK.”

Attracting public and private investment

The UK ranks 27 out of 30 OECD countries when it comes to private sector investment. To ensure the country stops lagging behind its peers, a new approach that adopts place-based impact investing is needed. This would benefit those saving for retirement and deliver strong risk-adjusted financial returns. Additionally, it would also attract public and private investment from UK pension pots back into the British economy.

Currently, just 31 per cent of British Defined Contribution (DC) pension funds go into the UK, and the British pension sector as a whole owns a mere two per cent of the UK stock market, down from 32 per cent in 1992. By comparison, the 20 largest pension funds in the US hold 10 per cent of the country’s publicly owned companies. Local government pension schemes (LGPS) provide a credible example of what can be achieved in the UK with a place-based impact investing approach.

Case studies

LGPS investments through Gresham House and its sustainable infrastructure strategy (BSIF)

  • Providing high-speed broadband to more than 150,000 rural and underserved homes, on track to deliver 500,000 new connections by 2025 across the North West, Cornwall and Scottish borders through portfolio companies GoFibre (Borderlink), Wildanet and Telcom. For every £1 invested, this has over £10 in economic, social and environmental benefits for the local regions.
  • Supporting the growth of vertical farming across the UK through investment in Fischer Farms, which has expanded on its first facility in Staffordshire with construction of the world’s largest fully automated vertical farm in Norfolk. Growing leafy greens and herbs in an indoor, controlled environment, this platform bolsters food security, uses up to 98% less water than field-grown crops and is more than 1,900 times less carbon intensive than imported alternatives.
  • Enabling nature-positive investment products by turning 4,000 hectares of non-arable land into regional habitat banks (wetlands and woodlands) by investing in the Environment Bank.

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