Finance and pensions

What's the issue?

An important part of our carbon footprint is associated with how we invest our money. This applies to individuals with pension plans and savings in the bank as well as to congregations, other organisations, and the wider Church.

While not all of us have funds in the bank, this privilege comes with responsibilities for how our banks and financial institutions are investing our money. Investing directly in companies that produce oil and gas is clearly linked to an increased carbon footprint, but there are also many companies in energy-intensive sectors whose activities emit high levels of greenhouse gases. Some companies are associated with deforestation, which accounts for 15% of global carbon emissions, according to the Make My Money Matter Climate Action Report, published November 2022.

For many of us, decisions on where and how our savings are invested are made by the banks or funds that hold our money, rather than by us as individuals or congregations. With over three trillion pounds invested in UK pensions, we need to think about how that money is invested on our behalf. A short video on the Make My Money Matter - your pension is powerful page highlights the issues well.

According to the Make My Money Matter Climate Action Report, over £1.3 trillion of UK pension money is now in schemes committed to net zero with a halving of emissions before the end of the decade. While this is good news, it's important to find out what our investment managers are doing, and how quickly they are taking action to achieve this goal.

Measure

How can we measure the carbon footprint of our investments?

Finding out how our money and our pension schemes are invested can help us understand this part of our carbon footprint. However, finding out the carbon footprint of investments is hard because many companies do not publish this data.

Some funds publish a figure called an "implied temperature alignment" for their investment strategy. This indicates the impact on global warming that the activities invested in by the fund are causing. Ideally, the implied temperature alignment should be no more than 1.5 degrees centigrade. This would mean that the fund's investment plan aims to cut carbon emissions to a level that would not see global temperatures rise more than 1.5 degrees centigrade above pre-industrial levels. This is the level of global temperature rise that the world governments agreed should be our limit at the Paris Climate Agreement.

Many funds claim to operate by Ethical, Sustainability and Governance (ESG) money management criteria – what is this?

Investment decisions made by funds that use "ESG" criteria evaluate the performance of a company on ethical grounds, as well as its governance and the environmental sustainability of its practices. Many of these funds now take climate change and carbon emissions as an important focus for their evaluation.

ESG-linked funds are growing and include active and passive funds. Active funds proactively invest in companies that promote ESG, whereas passive funds exclude companies that don't meet the ESG criteria. If you are able, it can help to do your own research into different companies too; there aren't standardised criteria for ESG across the industry, so "greenwashing", where companies claim to be doing a lot more than they are, is very common. Unfortunately, there isn't much we can do about this directly, but by understanding where our money is going and actively questioning some of the decisions that are made on our behalf, we can all become more climate-conscious investors.

Investments with the central Church funds

The Investors Trust is an independent, volunteer-led body which manages £500 million in Church of Scotland funds. This includes funds from central bodies such as the General Trustees' fabric fund, trusts such as the Salvesen Trust, as well as presbytery and individual congregations' resources.

In addition to congregational funds, several trusts managed by parish treasurers place investments with Investors Trust. The Growth Fund, the largest fund managed by the Trust, which finances the Church's day-to-day activities, disinvested from gas and oil companies in 2020. The Growth Fund has a target of 50% carbon emissions reduction by 2030 and zero carbon by 2050, all linked to the 1.5 degrees Celsius Paris Agreement targets.

Other environmental issues such as water stewardship are also considered. Following the 2023 General Assembly, an Ethical Oversight Committee will be set up to advise on the theological and ethical issues related to the Investors Trust's work. This Committee will report annually to the General Assembly.

Church of Scotland Pensions

Church of Scotland centrally employed staff and Ministers' pensions are managed by the Legal and General (L&G) pension scheme, into which individual employees and the Church's Central Services, who are the employer, pay contributions. These pensions are not part of individual congregations' carbon footprint, but they are part of the Church's Central Services carbon footprint, as the employer contributes a percentage to each pension. However, if your congregation employs staff locally, their pension and its carbon footprint is the responsibility of the local congregation.

There are many different funds managed by L&G, and individual pension scheme members can select the funds they invest in from their account. While the carbon emissions of the default fund selected by the Church are not disclosed, some of the other funds do have this information available in the ESG Hub.

Before the L&G scheme was set up, staff and Ministers' pensions were managed by the Pension Trustees, and this body still manages a lot of pension money. At the 2022 General Assembly it was stated that "The Pension Trustees have agreed a policy of investing in assets with the highest ESG rating".

What to ask your bank or pension provider about the funds that you are investing in to find out the carbon footprint

Questions to ask would include:

• What is the carbon footprint of the fund where my money is invested?
• Does the fund management use ESG criteria when investing my money and, if so, what criteria?
  • For example, are they linked to the UN Global Compact (a voluntary UN initiative)?
• What is the implied temperature alignment for the investment strategy of the fund?

For more information on banking advice and suggestions on how to approach your bank, please see the Just Money Movement (formerly the Ecumenical Council for Corporate Responsibility) page on banking.

If, as is likely, it's difficult to assess the current carbon footprint of your investments, you could simply record the answers to the questions above and record the new answers once you have made some changes or researched other options.

Reduce

Ways to reduce the carbon footprint of your banking and pensions.

What's the impact of changing from a standard investment or pension fund to a more climate-friendly one?

The impact could potentially be a huge reduction in carbon emissions. According to Make My Money Matter - your pension is powerful, changing from an average pension to a low-carbon pension could reduce an individual's carbon emissions by 21 times more than "stopping flying, going veggie and switching energy supplier combined". As more investments and pension funds linked to Environmental, Social and Governance (ESG) criteria are available, the evidence seems to be that these funds can do just as well as conventionally managed funds. (please see the Finance and Pensions: Measure section for more information on ESG). However, choosing investments that are truly making a difference can be tricky.

How do we go about changing to a more climate-friendly bank account and pension?

Choosing a bank for low-carbon investments

Once you have found out what you can about the carbon footprint of your current investments, you could compare them with other options available. The JustMoney Movement (formerly The Ecumenical Council for Corporate Responsibility) publish resources on choosing an ethical bank for your congregation, including an analysis of "five of the more ethical bank accounts suitable for churches and charities". The analysis is not focused purely on cutting carbon emissions and includes other factors important to ethical investment.

For more detail on banks' investments in fossil fuels and other high-carbon-emitting sectors, and other ethical issues, the Ethical Consumer website has a section on "ethical money" which provides useful information on banking, pensions, savings accounts, investments and insurance.

Choosing a more climate-friendly pension fund

The Climate Action Report (November 2022) analyses the 20 largest workplace pension providers with 15 million active members. This may help to clarify how well your pension provider is doing.

If you are a member of the Legal & General Pension Scheme

Church of Scotland staff and Ministers are members of the Legal and General (L&G) pension scheme, into which individual employees and the central Church pay contributions. While the L&G pension is not part of the congregation's carbon footprint, it is part of our personal footprint and part of the Central Church's footprint, as the Church contributes to the fund. The Climate Action Report rates L&G well for publicly committing to action on net zero, and specifically on deforestation. However, as a pension holder you have a choice of many different funds to invest your pension in, and while some funds are specifically designed to adhere to green and ethical criteria, others are less so.

If you are a member of the L&G Pension Scheme, you can log into your account and choose "Manage my pension". Choose "Investments" to browse the list of available funds. An overview of each fund is provided, and some have a factsheet which can be downloaded. In a few cases, carbon emissions and the implied temperature alignment are stated on the factsheet, although not for the current default Church fund. If you are in any doubt about your pension and how to manage it please contact with a professional financial advisor who can work with you to better understand your personal finances.