Fifth of savers want oil excluded from their pensions

A growing number of pension savers would like to see the oil sector completely excluded from their pension fund investments.

About 21 percent of pension savers say they want oil to be deducted from their pension, according to a survey by online pension provider PensionBee.

This is up from 15 percent of pension savers last year.

Besides oil, the top investments people want to exclude from retirement are companies that contribute to deforestation, habitat destruction and predatory lending.

Retirement savers also believe that investments in alcohol and gambling pose long-term financial risks to their retirement.

PensionBee found that in the top ten of the UK’s three largest master trusts, Aviva had invested 0.5 percent in Shell and 0.39 percent in The People’s Pension. Shell was not in the top ten Nest interests.

Skepticism about ethical and sustainable investments

This comes amid reports last week of investors ditching funds labeled as sustainable or ethical last month at their fastest ever pace, with people raising more than £300 million in May.

AIC survey late last year also found that private investors are more skeptical and pessimistic about environmental, social and governance investments than they were a year ago.

They were less convinced than last year by fund ESG claims.

Investors who believed ESG investing was more likely to improve performance fell from 33 percent to 22 percent, and those who expected it to negatively impact returns rose from 20 percent to 25 percent.

Earlier this year, the global ESG fund posted a return of -13.7 percent.

A case of choosing returns over ESG concerns

For many investors, the decision whether or not to invest in oil comes down to prioritizing returns over ESG considerations.

Becky O’Connor, director of public affairs at PensionBee, explains, “Pensions are investments. Through them, trillions of pounds are invested in companies that can improve or harm the planet and society through their business activities and collectively, that is our money, which will be used to fund our retirements.”

For this reason, the vast majority (79 percent) of people don’t feel ready to completely exclude fossil fuel companies from retirement, according to PensionBee data.

A recent survey by broker Charles Schwab found that 67 percent of UK investors are more concerned with maximizing returns on their investments than with their sustainability.

U.S. exploration and production companies have had the best shareholder returns of any type of oil company over the past five years, with a total return of 40 percent.

Commodities and natural resources were the best performing sector in the universe of the Association of Investment Companies at the end of 2022.

The return was 26 percent over the 11 months to the end of November 2022, compared to an investment company’s average return of -15 percent over the same period, benefiting from inflation.

But the renewable energy infrastructure sector also stood out among the best performing sectors, returning 7 percent – ​​in a period dominated by the energy crisis and concerns about global climate change.

O’Connor adds: ‘At PensionBee, we believe that companies that focus on contributing to society and the planet are more likely to be financially sustainable in the long run and will generate higher returns.’

What is the alternative?

For retirement savers who don’t want oil exposure in their retirement, what kind of industries and companies would give them returns comparable to oil?

Alice Guy, head of retirement and savings at Interactive Investor says, “Many employee pensions will have a standard fund that invests in stocks around the world, including oil companies.

It may be possible to move to a sustainable fund that limits its exposure to oil companies, but you have to read the fine print, because even these funds often don’t completely rule out oil exposure.

John Moore, investment manager at asset manager RBC Brewin Dolphin says: “The UK Windfarm Investment Trusts, Greencoat UK Wind and The Renewables Infrastructure Group show returns linked to wholesale energy prices and retail price index (RPI), but do not have the carbon footprint or broader uncertainties of oil or capital commitments.

“The high level of income and long duration of cash flows associated with these assets make them attractive to a pension fund and an alternative to traditional exposure to oil companies.”

Guy adds: “An option that excludes oil companies is the Montanaro World fund which invests in mid and small cap companies focusing on six themes: environmental protection, green economy, healthcare, innovative technology, nutrition and wellness.

Another option is CT Responsible Global Equity, which invests in mid-cap equities and focuses on high-quality companies in a variety of sectors, including IT, industrials and healthcare.

There are several sustainable bond funds to choose from, although many also have some oil exposure. Popular choices are the Royal London UK Ethical Bond and the Lyxor Green Bond.’

Hiring or Retiring?

Oil giants are not necessarily a no-go for all pension savers, even if they have concerns.

Whether it is better to engage with companies to try to influence them, or to divest from them in an attempt to starve them of capital, is a central question in the ESG debate.

Laurs Hoy, ES Analyst at Hargreaves Lansdowne, says: “Best-in-class oil and gas companies are likely to be part of the solution rather than just a problem by investing in renewables, exploring more efficient and less malicious ways to My Existing Sites.

‘Preparing your pension for the energy transition does not therefore have to mean that you have to divest all oil and gas companies.’

By engaging with companies by attending and voting at their AGMs, investors can use their shareholder power to influence oil companies and encourage them to improve their practices and invest in renewables.

But the results of PensionBee’s survey show that only 13 percent of retirement savers remain invested in oil companies to commit, while 21 percent want to divest.

Nearly half of customers willing to continue to invest in fossil fuels will only do so if these companies demonstrate a concrete commitment to reducing greenhouse gas emissions to near net zero and improving their environmental impact.

When it comes to voting and influencing companies to do less damage to the planet, the top priorities of pension savers have been companies reducing their carbon emissions – rather than buying offsets to offset their greenhouse gas emissions and the destruction of habitat and end wildlife.