Many in the financial services industry will remember the first advice we were taught to give clients: ‘Save first, and then spend what’s left. Don’t do it the other way round.’ Or words to that effect.
The problem was, of course, that many people were not good savers, especially when it came to saving for retirement. After all, it was a long way off, and there was this year’s holiday in Spain to pay for. Could it be, though, that a relatively recent development is about to change that?
Money is flowing into ‘green,’ ‘responsible’ or ‘ethical’ investment funds. Fund managers talk of SRI – socially responsible investing. Companies have ESG – ethical, social and good corporate governance – right at the top of their to-do list.
Could savings – and in particular saving for a pension – become a force for good? And could that in turn lead to more young people seeing saving not as something they reluctantly do, but as a driver of social change?
In both cases the answer appears to be ‘yes.’
Governments around the world are increasingly committed to green initiatives: as many people will know, the UK government has banned the sale of new petrol and diesel cars and vans from 2030. The Biden administration in the US will unquestionably adopt similar policies, following on from the decision to re-join the Paris Climate Accord.
In their early years, ethical investment funds – largely avoiding tobacco, gambling and the arms industry – had something of a mixed track record. That is now changing, with ESG funds more than holding their own amid last year’s difficult trading conditions.
Factor in the increasing dominance of Millennials and Generation Z – demographic cohorts who want to work for, and invest in, companies that share their ethical values – and the shift towards green investing can only gather pace.
The more these ‘new’ investors say, ‘I want my pension to be invested in funds that care about the environment’, the more fund managers will be forced to respond. And the more ESG investment funds that become available, the more young people will be willing to save. It is easy to see a virtuous circle emerging – more saving driving more ESG funds which in turn drives yet more saving.
A lot of people used to see saving for a pension as something distant and hard to understand: if the accelerating trend to ESG funds changes that, then it can only be a good thing, for both the industry and the savers.