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For companies in the U.K. that offer workplace pension plans to employees where both parties jointly contribution to the fund, the government now requires them to auto-enroll employees; workers previously had to opt in. “The government [was] turning inertia on its head,” says Steve Watson, head of proposition at fintech company Cushon.
Watson views the opt-out system as an improvement—but it brings about a new problem: As people enroll and contribute to those funds, they are also often investing in climate-unfriendly businesses. An average U.K. pension is financing 23 tonnes of carbon emissions annually, about equivalent to running nine family cars per year. “It feels wrong,” Watson says. “The more I save for my own retirement, the more damage I’m inadvertently doing to the climate.”
Cushon now offers what it claims is the world’s first net zero pension, comprising a fund whose portfolio of businesses emit the least carbon. Because of auto-enrollment, the net-zero fund—the winner of the small business (fewer than 100 employees) category of Fast Company’s 2022 World Changing Ideas Awards—becomes the default at any workplace that offers the Cushon plan. Because companies across industries are in the middle of transitioning to meet the U.K.’s net zero-by-2050 goals, Cushon knows it’s not going to achieve net zero by sustainable investing alone, so after limiting emissions as much as possible with its sustainably designed pension portfolio, the company pays to offset the outstanding carbon.
Some of the U.K.’s largest pension providers have announced moves to net zero portfolios, but they’re not available yet. Nest, which provides pensions to 10 million people, plans to offer them by 2050, as do Aegon and Scottish Widows. “We felt that that was just too far in the distance,” Watson says. “Climate change is a massive issue now.”
Cushon finds that they’re aligned with what the average worker wants. According to 2020 survey data from research firm Censuswide, 69% of U.K. employees worry that their pensions are contributing to the climate crisis—but 99.5% don’t know how many emissions their funds may be causing. “I am absolutely certain that very, very few would be able to name an underlying company that they’re actually invested in,” Watson says. People got used to pensions historically being “passive,” he says, when the government pension was sturdier; now, the U.K.’s mandatory state pension is among the lowest in the developed world, making workplace plans that much more vital.
Education about the matter is key. Help on that front has come from an unlikely source: romcom screenwriter Richard Curtis, of Love Actually and Notting Hill fame. Curtis cofounded Make My Money Matter, a grassroots organization that aims to persuade pension providers to invest in sustainable businesses, and to show employees how to pressure companies to do so. Curtis has praised Cushon, especially for its promptness of action. “The launch of a pension that is net zero now—not later—shows what is possible from the pensions industry when tackling the climate emergency is taken seriously,” Curtis said.
Cushon also wants to educate employees about the fact that more sustainable investment does not equate to less financially lucrative investment. In Watson’s opinion, it doesn’t help to fully divest from companies that may be current carbon emitters. “There are bad companies at the moment, but they’re going to be the good companies of the future,” he says. As companies are en route to net zero, it doesn’t make sense for an individual to release a share to someone else, who may prosper in the future when that company is greener.
Cushon consistently keeps tweaking the portfolio to include more net zero businesses, to work as an incentive for the company to not have to offset as much, which keeps things affordable. “We need to feel the pain financially, too,” Watson says. “Until we don’t have to use carbon offsets, our job is never done.”
Ren Ecosystem