The clout of possessing a pension is significant. So profound that, according to a current report by UK advocacy group, Make Your Money Matter, turning your pension green could diminish your carbon impact 21 times greater than forgoing air travel, adopting vegetarianism, and changing energy supplier altogether.
But for two-thirds of ireland’s employed populace with some kind of private retirement scheme, green pensions aren’t straightforward. Starting with the fact that pension suppliers are generally handpicked by employers. A 2019 pledge by the government, listed in the Climate Action Plan, to necessitate that pension suppliers notify savers as to whether their savings were being put into fossil fuels, has been abandoned. This has made it strenuous to ascertain the locations and methods by which pension funds are invested. Moreover, investing in sustainable and ESG sources (Environmental and Social Governance) has become a linguistic puzzle devoid of globally accepted norms.
Looking more broadly at investment funds, Ireland ranks third globally, with nearly 6% of global investment fund assets, amounting to €3.9 trillion. The Irish Funds Industry Association states that Ireland is an ESG investment frontrunner in Europe, holding roughly €1.2 trillion in assets, or 31% of total assets. The real sustainability of these investments, however, is up for debate. Make Your Money Matter proposes that of the £3 trillion in UK pension funds, £1.2 trillion should be reallocated towards renewable and sustainable energy solutions. This suggests potential to redirect around €53 billion from the €127 billion held by Irish pension funds towards sustainable investments and the green energy transition.
While it is not difficult to acknowledge, even vaguely, the principles of Environmental, Social, and Governance (ESG), critiques argue that these principles are not explicit enough, particularly regarding fossil fuels. Recent investigations by the International Energy Agency and Carbon Tracker reveal that under a scenario of 1.5 degrees global warming, 90 per cent of all fossil fuel reserves will effectively remain unearthed. Presently listed corporations possess $600 billion of the total $1 trillion in upstream oil and gas assets. These assets are at potential risk of being devalued or written off if they cannot be tapped due to new global commitments or government policy changes. Carbon Tracker suggests such ventures should not be supported any longer, with a swift halt followed by a prohibition on similar developments. In light of the recent IPCC reports, auditors and analysts ought to perform stress tests on investments and portfolios, considering a 50% emissions reduction by 2030. Investors ought to enact a more active role and encourage their investee firms towards a plan that aligns with international climate objectives and reduces vulnerability to energy-transition risks.
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Questioning whether Irish pension funds contribute to the continuous discharge of CO2 into the environment is entirely justified. A number of Irish pension funds have adopted elusive net zero goals but lack interim targets or detailed plans to align investments with the Paris Accord. Some funds endeavour “active engagement” policies with investee companies, without providing any clear strategy or demonstrating how they plan to actualise this by documenting their voting at shareholder gatherings. Others reject investments in coal but continue to back other fossil fuels. Numerous funds claim adherence to the UN Principles for Responsible Investing. Nonetheless, a neutral evaluation of Irish pension funds, that could assist savers in making choices between different providers, does not currently exist. Furthermore, there is no structured plan for the gradual disinvestment from climate damaging investments within the investment community.
Should the financial sector move its entire portfolio away from fossil fuels? Ethico, ethical investment advisors, hold a differing view. They propose that instead of complete divestment, fostering engagement might be the salient approach to transition investment from fossil fuels to clean energy alternatives, utilising divestment as the final straw. Encouraging such a shift asks a lot from a sector known for its traditional values, cautious approach to risks, and lingering denial regarding the future of fossil fuel stocks. Yet, decreasing the valuation of these stocks merely creates a discounted opportunity for private equity consumers who aren’t bothered by Environmental, Social, and Governance (ESG) standards. Also, such assets aren’t necessarily given up when investors retreat, suggesting the need for coordinated governmental initiatives to eliminate these companies and additional infrastructure reliant on fossil fuels.
Critics emphasise the duty of investment managers to amplify performance, diminish risk and diversify portfolios. They argue that the heavy implication of ESG can conflict with these priorities. Yet, it’s a misconception to believe that responsible investment is a costly endeavor, as it may well be the contrary. Recent studies reveal that cutting off oil investments does not harm portfolios and over a five-year timespan, across six distinct fund categories, eco-friendly funds regularly surpass their conventional counterparts in performance. If investing in ESG doesn’t result in a loss, pension funds surely can’t justify their reluctance to do so.
Senior climate advisor to Friends of the Earth Ireland, Sadhbh O’Neill, offers her expertise on the matter. Keep current with this evolving discussion via our Inside Politics Podcast or sign up for mobile alerts for the most current news, analysis, and commentary sent straight to your phone. Connect with The Irish Times on WhatsApp for regular updates.