Three key areas that could affect the growth of your pension pot

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Aiming to grow your pension pot over the long term? Then environmental, social and governance (ESG) issues are important. We take you through the basics.

Why do ESG issues matter when it comes to your pension pot?

Your pension pot is typically invested with the aim of growing its value over the long term – to help you have enough money when you retire. 

This usually includes a mix of different investment types, such as company shares, property and bonds, from around the world. 

So where do ESG issues come in? How a company manages (or doesn’t manage) these can impact its financial performance. And in turn, that can affect how much value it could add or remove to your pension pot. Let’s look at some examples. 

The E, S and G

With climate change at its core, the ‘E’ is often the most talked about. But to help grow your pension investments over the long term, it’s crucial to consider all three areas together. To look at what a company is doing – and how it’s doing it.

From risks to opportunities – there’s a lot to think about

When it comes to ESG considerations, a company can fail or flourish. If they breach rules around how they treat people and the planet, it could result in fines, damage to their reputation, less demand for their products and a falling share price. 

For instance, some companies face challenges as we move to a low-carbon future. They could see demand for their products fall as more people make environmentally friendly choices. There are potentially extra costs to adapting their business to a sustainable future – and possibly regulatory fines if they fail to do so.

But there are opportunities too. Good management of ESG factors can support a company’s brand and financial performance over the long term. Meanwhile companies coming up with solutions to ESG issues could potentially grow in value. Although it’s important to remember that the value of an investment can go down as well as up.

Considering ESG risks and opportunities can also help to drive positive change

We’ve covered just some of the reasons why investment managers may consider ESG when they decide where to invest your pension money. It’s first and foremost to help manage risk and to aim to improve returns (value) for you. This is also why they encourage companies to improve their ESG standards going forward, known as ‘stewardship’. 

And, by encouraging better consideration of ESG risks and opportunities to aim to help improve financial outcomes, it also helps to drive positive change. Where we all choose to invest (and not to invest) can, collectively, help to support the world we live in. 

Check where you’re invested today

If you’re a Standard Life customer and you’d like to check where you’re invested or make changes to your investments, you can do this online or on our app. 

You can find out more about our online services on our website, or visit our support page for FAQs and ways to get in touch.

Making changes to your pension plan and its investments is a big decision and could impact how much you’ll have in the future. If you’re feeling unsure about which investments are right for you, it could be worth speaking to a financial adviser. If you don’t have one, you can find one at Unbiased. You can check if an adviser has been authorised by the Financial Conduct Authority (FCA) on FCA.org.uk.

 

Along with the pensions industry, we’re on a journey to becoming a net zero business by 2050. Our first priority is to support a better financial future for our customers, but we want to support wider, impactful change at the same time. 

To do this, we’re taking actions we think can help to tackle the climate crisis and manage financial risk for our customers. We’re thinking carefully about where we invest in carbon-emitting sectors and engaging with those contributing the most to the climate crisis to encourage real change.

Find out more about our Net Zero Transition Plan. It’s important to note that Standard Life is part of Phoenix Group, so the data shown is for all the Phoenix Group brands combined.

The information in this article is based on our understanding in March 2024 and shouldn’t be taken as financial advice.

The value of investments can go down as well as up and you may get back less than was paid in.

Standard Life accepts no responsibility for information in external websites. These are provided for general information.