How vegan members can align their pension with their lifestyle

While adopting a vegan diet can reduce an individual’s carbon footprint by up to 73 per cent, switching a pension to a greener option can prove more impactful.

Research from Aviva, Make My Money Matter and data analytics company Route2 estimates that moving an average pension of £30,000 to a green option is 57 times more effective than switching to a vegan diet.

Unbeknown to many vegans and vegetarians, pensions often fund the likes of factory farming, fossil fuels and companies with links to deforestation that are eroding the precious levels of biodiversity on our planet

Kenneth Green, Make My Money Matter

Kenneth Green, digital campaigns manager at Make My Money Matter, explains: “There are multiple reasons why people choose to go vegan, whether that is to protect animal welfare, reduce their carbon footprint, or for health reasons. All these factors are important and yet the damage our pensions are causing could significantly outweigh any positives that are accrued through going vegan.

“Unbeknown to many vegans and vegetarians, pensions often fund the likes of factory farming, fossil fuels and companies with links to deforestation that are eroding the precious levels of biodiversity on our planet.” 

Richard Curtis, co-founder of Make My Money Matter, argues that pensions are the most powerful weapon to protect the planet. He has called for “the entire UK pensions industry to go green” by making default investment funds more sustainable “so all savers can have a pension to be proud of”.

He adds: “As individuals, we have a critical role to play in driving this change by showing providers that we want our money invested in a way that does good, not harm — and so that we can retire into a world that isn’t on fire.”

Ethical veganism

Last year, a landmark ruling recognised ethical veganism as a protected belief under the Equality Act 2010. It followed Jordi Casamitjana raising concerns that his employer, the League Against Cruel Sports, had a pension scheme that was invested in companies that tested on animals.

The animal welfare charity defended itself on its website: “There are pension funds available that offer more ‘ethical’ choices — but these are generally not available for organisations to offer automatically, because they often have higher financial risk and higher administration charges that fall outside the regulations.”

Since the ruling, no pension fund manager has offered a strictly vegan fund in the UK, but ethical funds are an option for trustee boards looking to cater to vegan members. 

Nest, the UK’s largest defined contribution master trust with £17.2bn in assets under management, offers a dedicated ethical fund that members can opt into with stringent exclusion criteria. Among the fund’s exclusion policies, it avoids investing in companies that test cosmetics on animals and seeks to invest in companies that meet animal welfare codes of practice.

Fellow master trust The People’s Pension offers a similar ethical fund, but its only explicit exclusion is companies involved in “controversial weapons” such as cluster munitions.

Nest has also used its membership of the Farm Animal Investment Risk and Return network to engage with major food retailers about increasing the supply of alternatives to meats and other animal protein products.

Net zero and veganism

Pension funds can also cater to vegan members by aligning their investment portfolios with net-zero climate goals. 

In July, Make My Money Matter called for 73 of the largest pension funds in the UK to commit to net-zero emission targets ahead of the COP26 climate conference taking place in Glasgow in November 2021.

The letter encouraged companies to commit to seven criteria, including matching the 1.5C ambition of the 2015 Paris Agreement, and reaching full net-zero emissions across portfolios no later than 2050. Non-animal-based techniques and production methods can form an important part of this effort.

In addition, a rising number of institutional investors are seeking to align their pensions with the UN’s Sustainable Development Goals. Two of the 17 goals relate to animals and biodiversity (SDG 14 and 15).

Make My Money Matter chief executive Tony Burdon said in July that the organisation’s focus had broadened to include the defined benefit sector because it accounts for most of the assets of the UK’s £2.6tn pensions industry. 

“These schemes have extraordinary power to help tackle the climate crisis and protect savers’ investments, but many have yet to respond to growing demand for cleaner, greener pensions,” he said.

Diversification

Veganism is not just about avoiding meat, says David Henry, investment manager at Quilter Cheviot. To ensure a fund aligns with members’ desires, trustees can use online tools to analyse their options.

“The best approach is to look for ethical fund solutions that screen out exposure to a wide range of issues such as animal testing. Fund-screening tools can ensure investment choices align with a client’s objective and ethics,” he says. 

Last year, StyleAnalytics, a factor-based portfolio and market analytics tool, released its Similyzer tool, which is designed to analyse markets and portfolios and highlight potential issues such as greenwashing.

The company says the tool can also help investors make detailed comparisons on factor exposures, historic performance, and risk measures — an important facet in ethical funds. 

Henry says portfolio diversification is “the golden rule” for investment, particularly when employing an exclusion policy.

“By excluding certain investment opportunities, you are narrowing your investment universe and therefore limiting the extent to which you can reduce risk through diversification,” he adds.

Vegans and vegetarians may currently make up a fraction of a scheme’s membership, but the positive impact these lifestyles can have on health and the environment will lead more people to explore how they can apply similar principles to their finances. Trustees need to be ready to understand their concerns and, if necessary, act on them.