ESG: What is it and why is it important for your pension savings?

Did you know you could make a positive impact on the world by simply choosing a fund with a more responsible investment approach for your pension?

There are lots of things to consider when it comes to choosing the right pension for you, such as your employment status, how much and how often you want to contribute, and where your money will go.

In fact, knowing what funds your savings are invested in has become a key decision-maker when choosing a pension, with 4 in 5 willing to pay more in pensions that help the planet (Omnibus from RedC on behalf of Irish Life, 2022).

But how can you tell if your pension fund is doing right by your money?

What is ESG investing?

Environmental, social and governance (ESG) investing looks at more than just financial metrics. It’s focused on building a more sustainable future by investing your money in companies and funds that meet strict environmental, social and governance criteria. By considering these additional factors, investors and pension providers can invest your savings in companies that drive positive change in the world.

In practice, this means investing less in companies that harm the world and more in companies that are trying to help it, aiming to grow your money responsibly. These are also known as responsible investments.

Environmental

Responsible investing looks at environmental factors such as a company’s carbon emissions, its energy efficiency, biodiversity and use of natural resources. For example, a company that causes pollution is likely to have smaller exposure in an ESG fund than in a non-ESG fund.

Social

Companies are also rated on their social practices such as how they treat and pay their employees. In an ESG fund, your savings are less likely to be invested in companies with poor health and safety standards or controversial supply chains, for example.

Governance

Governance relates to how a company is run. Companies are encouraged to protect employee rights, prevent corruption and strive for diversity. A well-run company is more likely to have a higher investment value than a poorly run company, offering potential better returns.

So, by investing more of your pension in companies and assets with good environmental, social, and governance ratings and less in those with poorer ratings, you’re also investing in a better future for your retirement.

How do ESG investments compare to other pension funds?

Non-ESG funds that invest in companies that provide products or services that are harmful to the planet or society, such as those involved in weapon or tobacco manufacturing, could be considered high-risk investments because their stocks are more volatile and open to large price fluctuations on the stock market.

Instead, ESG funds favour companies that are committed to environmental, social and governance factors.

According to reports from the World Economic Forum, ESG funds may even perform better in the long term than traditional funds due to greater exposure to more socially responsible companies or those that pose less risk to the climate.

What does ESG mean for my pension?

By choosing how your money is invested you can help to build a better future for everyone.

Irish Life Financial Services is tied to Irish Life Assurance for life and pensions.

Irish Life Assurance invests your pension savings in a way that does right by you and the planet. They're committed to growing your money and doing it responsibly by investing less in companies that do harm and more in companies that prioritise environmental, social, and governance factors.

If you’re interested to know how an Irish Life Assurance pension does more for you and the planet, check out this new carbon impact calculator. Choose a fund with a responsible investing approach to see how your contributions help to reduce carbon emissions.

If you want to find out more about responsible options for your pension, talk to one of our expert financial advisors today.