Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

Do you know how your pension money is invested?

If you don’t, it’s not necessarily a reason to worry. Rules for pension schemes these days mean that you should not be invested in assets that are inappropriate for you, while the charges you pay should be capped at a reasonable level.

Increasingly, however, another consideration is entering investors’ minds - is their pension money invested in a way that is sustainable for the world?

‘ESG’ investing means money is invested in assets which rank well on environmental, social and governance concerns. That can mean investments which avoid high-polluting sectors, or those which do society harm such as arms or tobacco. Or it may mean investments which are limited to only those which make a positive contribution to society or the environment.

As a pension saver - whether in a workplace scheme or a personal pension like a SIPP - you may be able to elect that your pension money is invested with ESG principles in mind. If that’s of interest to you, here’s some things to consider.

Sustainable doesn’t have to mean lower returns

ESG investing means some assets are off limits. Restricting your investment universe like this has the potential to put attractive assets out of reach, which could hurt returns, but the recent evidence suggests ESG assets can outperform non-ESG assets as well.

This makes some sense when you consider that one of the tenets of ESG investing is that companies which are sustainable in the long-run - because they are not consuming finite fossil fuels, for example, or running reputational risk through unethical trading practices - are likely to prove better long-term investments.

That has proven the case since the emergence of the Covid-19 pandemic a year ago. After the initial drop in markets in February and March 2020, Fidelity examined company performance during the period and found that companies with high sustainability ratings performed better than their peers as markets fell.1 This supported the theory that companies with good sustainability characteristics have more prudent management and will demonstrate greater resilience in a crisis.

The limits of ESG

There is no one standard of what counts as ESG, which means the principles that different ESG funds follow can vary a great deal. If you’re looking for ESG options for your pension money you need to understand how your chosen investments apply their ESG principles.

Some funds will take a relatively light-touch approach, simply filtering out some sectors such as fossil fuels, arms or tobacco to ensure the least sustainable companies are avoided. Some funds branded ESG may not even filter for fossil fuels.

Other funds are more discerning and will apply more hands-on analysis to ensure the companies invested in meet stricter standards on polluting levels or other social considerations. This type of fund makes it more likely that your investments meet an ethical standard.

Finally, the strictest ESG funds will only invest in assets the managers consider to be actively bringing about positive environmental or social change - rather than simply filtering out offending companies. That might mean they look to renewable energy companies, or technology firms which seek out solutions to reduce harm.

Whichever flavour of ESG you believe suits your aims, bear in mind that any given approach may not meet your own personal standards exactly - but some will get closer than others.

ESG in a workplace pension

The investment choices you can make inside a workplace pension will be limited by what your pension scheme offers. The extra interest in ESG means that pension scheme providers are increasingly offering ESG options and you should be able to find details of what yours offers by contacting them. Many schemes will provide an online route to view options and change your investment choices.

If your scheme doesn’t yet offer ESG options you should feed back your interest to your employer, who can explore ways to expand the investment choice in their scheme.


If you are investing for your retirement via a SIPP - a Self-invested Personal Pension - your investment options should be much wider. Here at Fidelity Personal Investing we have an online hub for ESG investing which includes some choices for funds which are managed according to ESG principles - and we’re working on more ways to help you find ESG investment to suit your own principles.

More on Sustainable and ESG investing


1 Fidelity International, 12 November 2020

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

Topics covered:

Active investing; ESG investmentsSaving for retirement; SIPP

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