ESG Investments – Genuine Commitment or Clever Marketing?
A couple of years ago, we spoke to local publications about a rising trend – ESG investing. And though responsible investing is nothing new (beginning somewhere around the mid-60s to reduce investment in tobacco production and the South African apartheid regime), a growing number of investors sought to become more socially responsible in the wake of the COVID-19 pandemic.
However, as the trend grew, it opened the floodgates for greenwashing claims, where pension providers and companies came under intense scrutiny on whether their sustainability claims were fully backed up by concrete strategies or just the latest attempt to jump on the eco-conscious bandwagon. A former chief investment officer for sustainable investment at BlackRock even publicly decried ESG funds as a “marketing gimmick.”
But with the Financial Conduct Authority (FCA) implementing new anti-greenwashing rules this year, are ESG investments now more robust? And does it give companies the confidence that the pension schemes they’re offering are actually helping protect the planet?
The Anti-Greenwashing Rule and Accompanying Guidance
On 31 May 2024, the FCA introduced a new rule for the financial industry to follow. In simple terms, the rule stated that FCA-authorised firms must ensure that where sustainability is referenced in relation to a product or service, the information must be consistent with the actual sustainability characteristics of that product or service, and any claims must be fair, clear, and not misleading.
To assist firms in complying with this new rule, the FCA published guidance in April 2024[1]. To follow this guidance and adhere to the new rule, investment companies must be more transparent about exactly what is, and is not, an ESG portfolio.
As society as a whole becomes more socially and environmentally aware, many investors want to know that their money is being invested in funds and companies that actively protect the environment and eliminate social injustices. This change in thinking has been apparent in many consumer studies, including those that deal with employee benefit packages.
Environmentally Friendly Pension Funds
As governmental organisations continue to enshrine the need to invest responsibly in laws and regulations, ESG investments, which were, at one time, “nice to have”, look likely to become the default position of every workplace pension scheme.
However, this is about more than just companies complying with the law. By seeking out pension providers who prioritise investments in ESG funds, many businesses will find themselves aligning with the needs of their evolving workforce.
According to research conducted by employee benefits technology company, Zest, an estimated 53% of the UK workforce would like to see their employer invest in more sustainable employee benefits, including environmentally and socially responsible pension funds[2]. Therefore, when it comes to attracting and retaining talent, a workplace savings scheme that checks this box should be the bare minimum requirement.
And now, because of the FCA’s rule, companies can be more confident that their chosen pension scheme hasn’t just been slathered with a fresh coat of greenwashing. Going far beyond a clever marketing ploy, the pension funds they offer should stand up to scrutiny and demonstrate a genuine commitment to employees, and the wider world, to environmentally and socially responsible practices.
Learn more about how our experts can help you deliver the best workplace pension scheme for your business via our Workplace Savings page.
[1] Financial Conduct Authority, ‘Finalised non‑handbook guidance on the Anti‑Greenwashing Rule’, April 2024 (accessed 30 September 2024), https://www.fca.org.uk/publication/finalised-guidance/fg24-3.pdf
[2] Zest 2024, ‘A third of young workers believe their employers do not care about sustainability’, April 2024 (accessed 4 October 2024),