Pensions minister Guy Opperman MP (pictured top) has called for pension funds to be used to invest money ethically - but investment managers remain sceptical, citing a generational divide holding back a tide of green money.
Writing in an article for The Times Mr Opperman has called on major pension funds to “play their part” in addressing the “climate emergency.”
He writes: “Our pension funds have the financial clout, long-term investment strategy and motivated members to back serious ways to use British capitalist innovation and enterprise to address our — and the rest of the world’s — growing green agenda.
“We need more investment to drive down the cost of providing energy, to commit to more nuclear and to create carbon free solutions to this 21st-century issue. That takes a lot of capital, an ability to think very long term and no political agendas.
“The good news is that the pensions industry has all three of these attributes. Suitably motivated, it can really make a difference, not only to the UK outlook. This can and should be in the pension funds interests, as they can then market that expertise as global pension fund investors and as backers of the new innovators.”
Mr Opperman’s call to pension funds to invest ethically comes alongside today’s announcement by the government of a ban on plastic straws, drink stirrers and cotton buds.
Mr Opperman adds that the government is taking action with legislative changes in October this year.
He says: “This Conservative government has started this process by legislating for with the environmental, social and governance (ESG) regulations, which come into force in October 2019.
“These require a pension fund to update its statement of investment principles and broadly take into account ESG factors when considering its strategic approach to investment. Going forward I believe we can go farther.”
The awareness among the public around the importance of finance in combatting climate change has grown in recent times. Much can be attributed to the controversial, but effective recent campaign by the Extinction Rebellion, and campaigns to raise awareness from broadcasters such as Sir David Attenborough.
But ESG-focused investing has been around for a long time. Asset management firm Kames Capital, for example, has been managing ethical funds for nearly 30 years.
Take-up of ESG-based investment products has been sluggish. According to Kames, just 1.5% of the market is invested using an ESG approach. This is perhaps why the pensions minister has called upon institutions to do more.
Speaking at a media briefing today, Craig Bonthron, co-manager of the Kames Global Sustainable Equity fund and Ryan Smith, Kames’ head of ESG research, agreed there was a generational issue at play.
Mr Smith says: “It's a generational issue. Broadly speaking the people who have money are the older generation. That will shift over time. Undoubtedly the more that ESG is talked about by everyone the more difficult it is for players like us to differentiate ourselves.
“We are working harder to educate people but also demonstrate that it’s not just simply a case of screening out certain companies, it's a bit more nuanced than that. Sustainability impacts a variety of sectors in different ways.”
Mr Bonthron adds: “Eventually the money of older generations will pass on to younger people who are more likely to be engaged with ethical investing. Any technological disruption happens when a product comes along that is better than the one that existed before.
“You don't get anywhere by appealing to emotion, appealing to guilt, you get there by providing a better product. That's what we're trying to do, provide a better product. Not just in terms of underlying companies but in terms of performance. The same way that Tesla is trying to provide a better product than the traditional car. It's the same approach. That's how you disrupt and get adoption.”
Mr Smith agrees: “We need to provide products that are equivalent or better than conventional alternatives. That's the only way that things will get sold.”
When asked what the role of investment platforms was to encourage ethical investing, Laith Khalaf, senior analyst at Hargreaves Lansdown, also present at the briefing, adds: “We do a lot of education around it but ultimately we don't see it as our role to tell people whether to invest ethically or not.
“We're about providing them with solutions, whether they're coming to us for ethical investment or growth or pensions or income. We're not at the stage where we're going to be telling investors what to do.
“Politicians are obviously in a different kettle of fish and there are lots of ways people can express their ethical views, it's not just through investment. It's through politics and consumption as well, which are probably more direct ways to do it. Our view is that our position in this is to help and inform people to invest however that may be.”