TLDR (too long didn’t read): What you need to know
- Sustainable pensions are a powerful yet underused lever for ethical impact in business.
- By switching to a sustainable workplace pension, you can align your business finances with your environmental, social and governance (ESG) values. This can help you reduce your indirect carbon footprint, support positive change and attract socially conscious talent.
- In this article, we explore what sustainable pensions are, why they matter, how to align your scheme, and the practical steps to take as a business owner.
Sustainable pensions: The overlooked superpower in your ESG strategy
If you’re a purpose-led business owner, chances are you’ve already reviewed your suppliers, introduced greener operations or partnered with ethical brands. But how often have you thought about where your workplace pension scheme invests its money?
According to research from Make My Money Matter, the average UK pension has 21 times more impact on your carbon footprint than giving up flying, becoming vegetarian, and switching energy provider combined. It’s a powerful insight—especially when many UK workplace pensions are still invested in fossil fuels, arms, tobacco and deforestation-linked industries.
For VAT-registered SMEs that care about purpose and impact, sustainable pensions offer a meaningful (and often simple) way to boost corporate responsibility, improve employee engagement, and support your ESG goals—without affecting contribution levels.
What is a sustainable pension?
A sustainable or ethical pension is a workplace pension scheme that takes environmental, social and governance (ESG) factors into account in its investment strategy. These pensions avoid investing in industries that cause harm (e.g. fossil fuels, banking, weapons or tobacco) and instead back sectors that promote sustainability—like renewable energy, green tech, social housing or low-carbon transport. Sustainable pensions typically use one or more of the following investment approaches:
- Negative screening – excluding harmful industries (e.g. coal, arms).
- Positive screening – actively selecting ESG leaders in various sectors.
- Impact investing – investing in companies or projects that aim to generate measurable social or environmental outcomes alongside a financial return.
- ESG integration – including ESG risk and performance data in financial analysis.
Why should SMEs care about sustainable pensions?
There are several key reasons to put your workplace pension under the ethical microscope:
1. Enhance your ESG credentials
Making your pension more sustainable helps reduce your business’s indirect emissions (Scope 3), which include investment-related carbon outputs. It’s one of the easiest ways to make a real impact on climate and social outcomes.
2. Attract and retain socially conscious employees
Today’s workforce, especially younger employees, want to work for businesses that align with their values. According to Aviva, 73% of employees say it’s important their pension is invested responsibly. Offering a sustainable scheme shows you care about what happens to their money.
3. Strengthen your employer brand
A visible commitment to sustainable finance helps reinforce your values and can boost your reputation with clients, stakeholders and the wider community. It’s also a great talking point in recruitment, PR, and impact reports.
4. Lead by example
As a purpose-led SME, your choices matter. Being ahead of the curve on sustainable pensions positions your business as progressive and responsible—and sets a valuable example for others.
Practical steps to align your business pension with ESG values
Ready to explore a sustainable switch? Here’s a practical roadmap:
1. Review your current pension provider
Start by requesting details from your pension provider about where your current default fund is invested. Ask about their ESG policy, exclusions, and what sustainable options are available.
2. Assess your provider’s investment strategy
Not all “green” pensions are equal. Check whether your provider’s ESG strategy involves:
- Active screening for harmful industries
- Alignment with net zero targets (such as those set out by the Paris Agreement)
- Transparency and independent ESG assessments
- If they publish regular reports, which outline key updates to responsible investment strategies
3. Talk to an independent adviser
Financial advisers specialising in ethical pensions can review your current scheme and recommend suitable sustainable alternatives tailored to your business.
4. Engage your team
Employees should be aware of their options. Consider running an internal session or sharing a simple explainer to raise awareness of how pensions can align with personal and company values.
5. Update your default pension fund (if needed)
If your existing provider doesn’t offer a credible sustainable option, you may need to switch providers or update your default fund settings. Providers like Nest, Aviva and Scottish Widows have launched more sustainable offerings in recent years.
Choosing a sustainable pension provider that works with your payroll
If you want to offer an ethical pension scheme but don’t have time to dive deep into the research, there are simple, practical options available—especially when your payroll software does the heavy lifting. Pension providers like Nest and Aviva offer ethical fund options that have been recognised by consumer organisations.
Business owners should note: Employees are usually enrolled into the default fund by the employer, so they’ll need to log in and switch to the ethical fund themselves if they want to opt in. For example, Nest’s ethical fund isn’t the default, but employees can choose it later.
BrightPay (for an easy but ethical life)
To make life easier, we recommend using a provider that integrates directly with BrightPay, our payroll software of choice. BrightPay supports API integration with Nest, Aviva, Smart Pension and The People’s Pension, which means pension data is submitted automatically, saving time and reducing admin.
If you’d prefer to hand it over completely, we can run payroll for you—integrating with BrightPay and supporting your move to more sustainable business practices.
FAQs
Yes. Most sustainable pension funds cost the same—or very similar—to conventional ones. Many default schemes already include sustainable options at no extra cost.
Not necessarily. Many sustainable funds perform competitively. Long-term returns are comparable to traditional funds, with the added bonus of reduced exposure to ESG-related risks.
Look for transparency, credible exclusions (e.g. fossil fuels), third-party ESG ratings, and published reports on the fund’s impact. Watch out for greenwashing—some funds market themselves as “ethical” without meaningful changes.
You can still influence change by raising the issue with trustees, employers or scheme managers. It may also be possible to offer employees access to sustainable self-select funds
Ready to align your pension with your values?
Making the switch to a sustainable pension could be one of the most impactful steps your business takes this year. If you’re unsure where to start or would like an independent review of your current setup, we’re here to help. Get in touch to chat with our team.
