A question often asked by individuals new to sustainable and responsible investing is: “My priority is a secure pension pot for retirement, so why should I care about sustainability and climate change?”

And while the answer is nuanced, fundamentally it is: because you will have a bigger retirement pot by doing so.

Mounting evidence shows this to be the case and it is a key reason why the Department for Work and Pensions recently laid new regulations that will require pension schemes to publish their approach to sustainability.

Specifically, the DWP’s proposals, outlined in its consultation on Clarifying and Strengthening Trustees’ Investment Duties, make clear that pension scheme trustees are to consider all financially material factors – including environmental, social and governance concerns – and clarifies that even non-financial or ethical factors may be considered in certain circumstances.

ESG can create opportunities

ESG factors are often overlooked as being purely ethical, conflicting with our duty to maximise returns. However, investors that properly understand ESG issues and the impact they have on value can, and very often do, find their investments outperform.

Will Oulton, global head of responsible investment at First State Investments, says: “Across all our asset classes globally, 83 per cent of our funds on an asset weighted basis have outperformed their respective benchmarks over the past five years. We believe ESG issues are sources of risk and return and therefore contribute to such compelling performance.”

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