Nest scheme puts savers’ cash into green investment strategy


State-backed pension provider Nest is to plough £5.5billion, nearly half of its 9million members’ money, into a climate-friendly investment strategy.

Nest’s goal is to halve carbon emissions generated by its investments by 2030 and reach ‘net zero’ by 2050. 

It will also ditch companies involved in thermal coal, oil sands and Arctic drilling within five years, unless they plan to phase out such activity.

‘No-one wants to save throughout their life to retire into a world devastated by climate change,’ says Mark Fawcett, chief investment officer of Nest. 

Combating climate change: A survey of UK adults earlier this month found 79 per cent want a 'green recovery' from the coronavirus crisis

Combating climate change: A survey of UK adults earlier this month found 79 per cent want a ‘green recovery’ from the coronavirus crisis

Nest recently backed the Make My Money Matter campaign, launched by celebrity film director Richard Curtis and ex-Bank of England governor Mark Carney, which is urging pension funds to invest the £3trillion in UK retirement pots to take on climate change. 

Carney has previously warned pensions funds and other businesses risk seeing assets become ‘worthless’ unless they wake up to the climate crisis.

Nest was set up by the Government for workers and employers when it launched pension auto enrolment in 2012, and it currently looks after the retirement funds of one quarter of the UK’s working population.

The scheme carried out a survey of UK adults earlier this month which found 79 per cent want a ‘green recovery’ from the coronavirus crisis, and 65 per cent believe their pension money should be used to combat climate change.

Nest has announced the following initiatives, which are aimed at aligning it with the Paris Agreement goals to keep global temperature rises within 1.5 degrees celcius above pre-industrial levels by 2050.

– Move £5.5billion shares into climate aware strategies, representing 45 per cent of Nest’s entire portfolio, reducing Nest’s carbon footprint by the equivalent of taking 200,000 cars off the road, or heating nearly 50,000 households via renewable energy for a year.

– Begin divesting from companies involved in thermal coal, oil sands and Arctic drilling and drop them entirely by 2025 at the latest, unless they have a clear plan to phase out all such activity by 2030.

It will exclude all companies with more than 20 per cent of revenues from these activities by the end of 2020, all with more than 10 per cent of revenues from them by 2023, and then the rest by 2025 if they have not committed to a full, accountable phase-out by 2030.

– Build on the £100million it has already invested in renewable projects across Europe by putting a greater proportion of its funds directly into green infrastructure.

– Pressure companies to align with the Paris goals and divest from those that show little progress following such efforts.

– Commit fund managers to making progress against set benchmarks, including halving emissions by 2030.

Nest’s survey this month of around 2,000 adults, nearly all saving into at least one pension, found just 4 per cent strongly disagreed that their retirement fund should be invested in a way that reduces the impact of climate change.

Some 57 per cent were worried about the impact of climate change on their lives, more than the 51 per cent concerned about the personal financial impact of coronavirus.

However, only 1 per cent have made a change to the way their pension was invested in the past year.

Some 15 per cent said they were put off checking if their pension was invested responsibly because it was too complicated or difficult to know how to do it, while 17 per cent didn’t know they could change funds.

A quarter thought their money was already being invested responsibly, and almost two in five had never thought about it.

Nest also found that 38 per cent did not know their pensions are invested, at least partially, in shares, and said this suggested schemes have a responsibility to make tackling climate change part of the strategy of their ‘default funds’. 

Fawcett says: ‘Just like coronavirus, climate change poses serious risks to both our savers and their investments. It has the potential to cause catastrophic damage and completely disrupt our way of life.

‘As the world’s economy slowly recovers from coronavirus, we want to ensure this recovery is a green one. We have a unique opportunity to support sustainable growth and transition towards a low-carbon economy.

‘We believe our new policy sets out a clear vision of where we’re heading. We’ll now work on taking the necessary steps to become net-zero, using our close partnerships with fund managers to amplify our impact and coordinate activities towards meeting the Paris Agreement goals.’

Tony Burdon, chief executive of Make My Money Matter, says: ‘This is the first time a leading UK master trust, managing the pensions of over 9million British people, will ensure that its entire investment portfolio is net zero by 2050, with an expectation of halving of emissions by 2030.

‘We’re delighted by Nest’s leadership, but it begs the question, why Nest and not the rest? 

‘That’s why Make My Money Matter is urging all UK pensions funds to match this ambition, and commit to net zero portfolios. After all, what’s the point of saving for retirement in a world on fire?’

What is Nest? A state-funded pension provider set up alongside auto enrolment 

Nest, or the National Employment Savings Trust, was set up in late 2012 alongside the Government’s auto-enrolment initiative which forces all employers to set up workplace pension schemes.

This was because a state-funded provider was needed for employers which either couldn’t or didn’t want to contract out their pension business to a big insurer or set up a trustee-run scheme of their own.

Nest is free for employers, and offers a simple charging structure and online tools and services to members.

The annual management charge is 0.3 per cent of the total value of a member’s fund each year. There is also a contribution charge of 1.8 per cent on money going into a member’s retirement pot.

If a member’s pot was worth £10,000, they would pay an AMC of £30. If £1,000 was paid in over a year, the contribution charge would be £18. That would bring the total charge to £48, or just under 0.5 per cent of the total value of their retirement pot.

NEST offers a range of seven funds – default, ethical, sharia, lower growth, higher risk, pre retirement, and guided retirement for members aged 60-70. 

Nest is the largest UK pension scheme in membership terms, holds more than £12billion assets under management, and receives around £400million each month from members.

It expects to manage nearly £100billion on behalf of its savers by 2020.

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