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Net Zero Pension

Page Author: Ciarán Hughes QFA

 

What is a Net-Zero pension? 

We all create carbon emissions in our daily lives. For example, if I own a car, the emissions created from driving that car are my responsibility. To reduce my carbon footprint I could switch to an electric vehicle, get the bus more often, or try to cycle where possible. 

Your pension fund invests in companies to make a return on your behalf. As a shareholder, you own a portion of these companies. Their production and manufacturing activities create carbon emissions. Just like the car example above, you are responsible for the carbon emissions generated by the companies that you own through your pension. 

Pensions provide many benefits to us like tax-relief on contributions, tax-free growth until retirement, and an income in retirement, but is it possible to save for retirement without compromising our environmental ethics and values?

A net-zero pension evaluates and screens companies before investing in order to reduce the carbon emissions from the fund. Carbon offsets are then used to equalise the remaining/unavoidable carbon created. The net-effect is that climate change is not accelerated by the investments in your net-zero pension. Ethico offer Ireland's only net-zero pension. Company pension schemes and individuals can enjoy the benefits of traditional pensions while investing sustainably for the future.

So how do we achieve net zero for carbon emissions in your pension or investment fund? 

First, let's look at traditional funds where most pension schemes are invested. The average carbon emitted from a traditional fund is 150 tonnes every year (per million euro invested)  - that's carbon dioxide equivalents, or green house gas emissions.

 

On average, ethical funds generate about 50 tonnes of carbon per year - that's a 66% reduction. We achieve this by utilising ethical investment funds which exclude many of the large contributors to climate change - like coal, oil, and gas companies. Ethico funds adhere to strict ESG metrics (Environmental, Social, & Governance) and prioritize climate positive companies when selecting investments. In simple terms, we remove the bad companies and include the good. 

As a final step to achieve net-zero emissions, Ethico offset the remaining carbon via the United Nations carbon offset platform. https://offset.climateneutralnow.org/

 

This effectively reduces the emissions of Ethico pensions to net-zero now - without having to wait until 2050!

Let's look at an example that may be helpful in estimating the carbon emission from your company pension scheme:

Employees: 100

Average salary: €50,000

Average Pension contribution:

5% employer, 5% employee.

 

Annual premium = €500,000

Previous pension accumulated (10 years) = €5,000,000

For this simple example we shall ignore growth, inflation, charges etc. 

Over the next 10 years, the carbon emitted from your company pension could be reduced from 11,625 tonnes to net-zero. That's the equivalent of NOT burning 30,000 barrels of oil into the atmosphere! If your organization is larger, these totals would increase.

What are the pros and cons?

  • When assessing fund returns over time, ethical funds have matched or outperformed traditional funds. The data supports that there is no reduction in returns for investing in a net-zero pension.  

 

  • Fund charges on ethical funds are more competitive now than in the past so, depending on your scheme or policy, charges will be largely the same as a traditional pension scheme. 

  • In general, large carbon reduction projects can require significant investment. There is no cost to switching to a net-zero pension - it is an easy win. In some cases scheme costs can actually be reduced further by switching away from traditional charging structures.  

  • Studies have shown a strong correlation between organisations that score highly for ESG and employee satisfaction. We believe that recruitment and retention are strengthened by the provision of a net-zero pension. 

  • Net-zero pensions are available as part of a broader Employee Benefits packages so peripheral benefits would be unaffected by switching. 

Your Ethico advisor will be happy to discuss your options and guide you or your organization to a net-zero pension solution. 

*Supporting calculations on emissions

Get in contact today to discuss your options

Unit 3 Block F

Maynooth Business Campus

Maynooth

Co. Kildare 

W23 K7N3

77 Camden Street Lower
St Kevin’s
Dublin 2
Ireland
D 02 XE 80

(01)  902 3426

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