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How green is my pension?

Pension power should not be overlooked in tackling the climate crisis – but how do architectural practices and their staff know when a pension fund aligns with their values?

25 November 2021

From reducing the carbon footprint of buildings to cycling everywhere, the battle for net zero takes many forms for architects. But one avenue that is not considered as often as it could be is how they invest for their old age to promote the good of the planet.

Investing into pension funds that align with the values that many architects espouse in their professional and personal lives can make a difference. Recently, the screenwriter and director Richard Curtis has been pushing the message as the founder of the Make My Money Matter campaign, which is urging pensions – worth £2.6 trillion in the UK alone – to be switched from industries and companies that damage the planet into sustainable ones.

At COP26 in Glasgow, the Comic Relief founder was joined by celebrities, activists and businesses to launch the 21x Club. The figure of 21 refers to research carried out by Aviva and data analytics company Route2, in conjunction with Curtis’s campaigning group Make My Money Matter, which suggested that making your pension ‘green’ is 21 times more effective than the combined effects of going vegetarian, stopping flying and switching to a green energy provider, (though campaigners hasten to add it should not be an either-or option).

There is already a notable trend in this direction. Globally funds invested along ESG principles — environmental, social and governance – reached $350bn last year, compared with $165 billion in 2019, according to research by the investment analyst Morningstar. The Financial Times reported that net assets held in UK-domiciled ESG funds went from £29 billion at the beginning of 2017 to £71 billion by the end of 2020, including active and passive funds.

That’s potentially good news for the architectural practices wanting to provide a pension scheme for their employees that invest along ESG principles. Since 2008 even the smallest practices are obliged to auto-enrol most of their staff into a company pension scheme. But ensuring the choice of pension meets these ESG criteria can be a challenging proposition – even for the financially savvy. As well as selecting a suitable scheme, practice managers also need to balance the choice with an acceptable return, while keeping management fees down for staff and themselves.

So how do you know that your pension cash is not being sunk into a new coal mine or exploiting low wage labour?

Amanda Winslade, RIBA Business Manager, says there are some very simple telltale signs. “One is the clear information presented – you generally find that pension/investment companies that have a good investment or green strategy are very upfront about it.

“You don’t have to struggle to find the information. It should be very clear what those investments are and how many of them have an ESG strategy framework. It’s just a bit more transparent.”

It’s also important, she says, to avoid ‘greenwash’ – whereby pension providers – particularly smaller schemes – use some of the schemes’ profits to offset the scheme’s carbon footprint, rather than invest in ESG funds in the first place. “Therefore, you get a good return, but you’re still invested in things that you don’t necessarily approve of, for example, North Sea oil and fossil fuels.”

To help practices make the right choices, the RIBA has partnered with Smart Pension to create a market-leading auto-enrolment pension solution tailored for architects' practices and their employees.

Winslade says that one of the reasons the RIBA chose Smart Pension was because it has a high number of ESG funds as its default option – currently 71 percent. Those enrolled in the scheme can choose to remain in the default fund or select from 17 alternative funds including ethical, Shariah and ESG funds.

“We already know about 95 percent of people don’t move from the default portfolio, so as the RIBA, we wanted to make sure they were invested in a high level of ESG funds from enrolment and still provide a decent return.” Smart Pension is signatory to a number of responsible investment protocols, including the UN Principles of Responsible Investment. It is also a member of the Occupational Pensions Stewardship Council and is backing the Make My Money Matter campaign, committing to net-zero no later than 2050 and reducing emissions by at least 50 percent by 2030.

Another consideration for the RIBA was that Smart Pension fees are low and RIBA has negotiated an additional discounted rate. Members of the Smart Pension scheme’s default investment fund pay 0.25% annual management charge and a £1.25 fixed monthly fee, which Winslade points out is significantly lower than most. Practices pay from just £50 per annum to the RIBA for support and administration.

Ethical pensions like Smart Pension’s default scheme screen out investment in controversial weapons, coal manufacturers and UN Global Compact violators and tilt investments away from companies with low ESG scores and towards those with high ESGs.

ESG scores are generally based on criteria like their policy on climate change, or their waste production. Consideration is also given to other factors, like a company’s community engagement or how well they protect human rights. They take into account a company’s governance – the way the business is run, and diversity of the board, for example.

As Winslade notes: “Twenty years ago, people started thinking about pensions when they were 50. Now, with auto-enrolment, people get auto-enrolled as soon as they turn 21. If they’re 21, why wouldn’t they want as many ESG funds as possible over a much longer period?”

To find out more about the RIBA Pension Solution, contact the RIBA Pension Team on (0) 20 7307 3737 or email ribapension@riba.org.

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