Responsible investing is an investment approach that takes into account people, society and the environment when making investment decisions. It’s an approach that has grown in popularity in recent years. More investors are making the conscious decision to only invest in companies that have a positive impact on the world or that at the very least cause it no harm.
However, recent research shows that myths and misunderstandings about responsible investing are quite widespread, and they’re stopping many people from investing their pensions responsibly.
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This is what people think about responsible investing
A recent survey of 2,000 people by Opinium for Hargreaves Lansdown has revealed some of the views that people have about responsible investments:
- 52% of people believe that maximising their investment returns is more important than investing responsibly. This is particularly the case for those nearing retirement age, with 64% of 45-54-year-olds and 60% of 55-64-year-olds prioritising investment returns.
- 35% of 55-64-year-olds don’t think they would make such substantial returns if they invested responsibly.
- One-third of 65-74-year-olds and 41% of 75-year-olds say they help the environment in other ways, compared to 11% of 25-34-year-olds.
- Overall, more than a quarter (21%) of people believe responsible investments are a fad. However, the proportion is lower among 55-64-year-olds (12%) and 65-74-year-olds (14%).
The reluctance to embrace responsible investing
Helen Morrissey, senior pensions and retirement analyst at Hargreaves, understands why some people might be reluctant to invest their pensions responsibly.
She says that people who are near retirement “want to know their pension investments are working as hard as possible”. As a result, they are unlikely to opt for strategies that could result in lower returns.
The fact that older people mention helping the environment in other ways shows that these issues are important to them. They are just not willing to risk their retirement on it.
Other common misconceptions are that responsible investing is more difficult, expensive and time-consuming. With so many myths and misconceptions out there, the reluctance the data shows is understandable.
Using evidence rather than myths to judge responsible investing
According to Morrissey, investing your pension responsibly does not have to mean accepting lower returns. In fact, there is a growing body of evidence that suggests that lower returns from responsible investments are a myth.
A study by financial data provider Morningstar found that a majority of sustainable funds outperformed their traditional peers over the past decade. That said, it’s always important to remember that past performance does not dictate future results, of course.
Unfortunately, responsible investments are unlikely to become mainstream as long as people continue to believe that they have to sacrifice some investment returns in order to invest responsibly.
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Top tips for investing responsibly
Here are Helen Morrissey’s top tips for those who want to invest their pensions responsibly:
- Once you join a pension, you don’t have to remain invested in the pension’s default fund. If it’s not as responsible as you would like it to be, speak to your provider about other options available.
- Responsible investment means different things to different people, so take the time to figure out what it means to you. Start by understanding your values and then look for funds with an investment approach that’s consistent with these values.
- While understanding your values is important, it’s also wise to keep an open mind. You might not find a fund that ticks all your boxes. Making responsible investments doesn’t have to mean excluding companies whose values don’t align with yours. You can still invest in these companies and use your investment to drive change through actions such as voting at AGMs.
- If you have specific values but can’t find a fund that aligns with them, consider investing in the stocks of individual companies instead. Note, however, that you will have to do more research here than if you were to invest in a fund.
If you are interested in investing your pension responsibly but are unsure of where to start, consider speaking to a financial adviser.
