According to research conducted by Invesco, 82% of people would favour part of their pensions automatically investing in a company that meets a certain ethical standard. 

Whether you want to improve the level of ethical considerations in your pension fund or are intent on eliminating companies that don’t align with your ethics entirely from your retirement pot, there are plenty of approaches you can take. 

Whether you opt to open a carefully curated ethical pension or prefer to take full control over the assets you buy into by opening a self-invested personal pension (SIPP), maintaining a focus on companies that care for their environmental, social, and governance (ESG) commitments can be highly rewarding. 

In fact, data from Nest suggests that investing in an ethical pension can be 21 times more effective for cutting your carbon footprint than giving up flying, becoming a vegetarian, and switching to a renewable energy provider combined. 

But how can you build your ethical pension pot effectively? Let’s take a deeper look at seven key considerations to take in order to ensure that your pension matches your own ethics: 

1. Consider What an Ethical Pension Looks Like for You

Before you begin building your ethical pension pot, it’s important to take a moment to consider your principles and values. 

Would you like your money to be invested in environmentally conscious firms? Or are you more focused on cutting out nefarious companies, such as gambling stocks or organisations with a questionable record on worker rights? 

Think about the type of companies you want to invest in, as well as the exclusions you want to keep in place before you get started saving. If you’re unsure of exactly where you want your pension money invested, it’s worth consulting a qualified financial adviser. 

2. Negative Screening Can Help

Some ethical pension providers also make use of negative screening tactics to help prevent your money from ever falling into the hands of companies in harmful industries. 

These safeguards can ensure that you won’t inadvertently be investing in industries like fossil fuels, tobacco, weapons, adult entertainment, and gambling. 

In many cases, ethical pension providers will follow a 10% rule, which stipulates that fund managers must maintain a maximum 10% tolerance for exposure to companies from excluded industries. 

3. Diversification Rules Should Still be Followed

While you may be more inspired by clean energy firms or renewable technologies, it’s important to remember that diversification is still essential in building a sustainable and future-proofed pension pot. 

Try to avoid keeping all your eggs in one basket in terms of the assets you invest in, because if a sector begins struggling for growth, your retirement fund could be hit especially hard. 

Instead, aim for a range of different companies worldwide across multiple asset classes to ensure that your ethical pension pot is well protected against unexpected issues. 

4. Transparency is Key

Because most funds generally only reveal their top 10 holdings when managing pensions, gaining full transparency can be important when you’re looking to maintain a clear conscience when it comes to saving for your retirement. 

To make matters more challenging, most ethical funds will be heavily populated by leading low-risk tech stocks like Apple and Microsoft, making it difficult to assess just how caring your fund manager is when it comes to matching your ethics. 

However, some pension providers offer full transparency and publicly reveal their holdings in their entirety. With this in mind, it’s worth doing a little research into which provider holds what when assessing who to save with. 

5. Be Wary of Greenwashing

In recent years, ethical investing and ESG stocks have grown in popularity—so much so that some companies on Wall Street turned to ‘greenwashing’ tactics to win more investor interest. 

The term ‘greenwashing’ refers to companies that have falsely represented themselves as an ethical firm to invest in without going to the effort of caring for their environmental, social, and governance commitments. 

Fortunately, the Financial Conduct Authority (FCA) has moved to clamp down on greenwashing, but it’s always worth going the extra mile in checking the validity of a firm’s ESG claims if you’re building your retirement savings using a SIPP. 

6. Review Your Investments Annually

Things can change quickly when it comes to building an ethical pension, and it’s always worth setting up an annual audit of your investments if you’re using a SIPP. 

At least once a year, be sure to assess your pension fund’s performance to ensure that it’s still matching your investment goals. Here, you should consider your risk tolerance, the performance of your chosen assets, and the charges issued by your provider. 

This information will be provided on your annual statement, and it’s certainly worth checking more frequently as you approach retirement age. 

7. Remember That Ethics Are Subjective

No two fund managers are the same, and ethical investing can mean different things to different people. 

With no standardised way of determining one ethical company from another, building an ethical pension can be a challenge for investors, no matter how committed and driven you are. 

If you’re unsure whether your pension is aligned with your commitments to environmental, social, and governance initiatives, it’s worth checking with your provider or consulting your financial advisor if you have a SIPP. 

Saving with a Clear Conscience

There’s no better feeling than building your wealth on your terms. With this in mind, getting started with an ethical pension can help you to save for your retirement by cutting out nefarious companies and assets that don’t align with your values. 

By staying true to your goals, researching your positions, and using pension providers that value transparency, it’s possible to create a pension plan that can pay dividends long into the future while caring for the causes that are closest to your heart.