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How to stop your pension savings from funding deforestation

We look at the effect investing can have on deforestation and 3 funds that could offer a solution.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

£1 of every £5 invested in UK pensions can be linked to deforestation.

Deforestation is the clearing and removal of forests and rainforests by humans, usually for agriculture or grazing. One major driver is for the production of palm oil, which can be found in nearly 50% of supermarket packaged products.

Home to more than 80% of our planet’s land animals, plants and insects, forests are an important part of our global ecosystem. They underpin a variety of natural services, from food, medicine and clean water to flood protection and shelter.

Forests also play a critical role in the stability of our planet. They’re known as ‘carbon sinks’, absorbing more carbon from the atmosphere than they release – helping to regulate our planet.

Last year’s COP26 climate conference saw global leaders pledge to end and reverse deforestation by 2030. The countries that signed the pledge make up around 85% of the world’s forests. But we don’t have to wait for our governments to take action.

With £2.7 trillion in UK pensions, investors have the power to hold corporates to account and shape the world we’re going to retire in.

In this article, we’ll take a look at the different ways investors can boycott deforestation and invest in solutions.

Investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.

This isn’t personal advice. If you’re not sure what’s right for your circumstances, ask for financial advice. Remember all investments and any income they produce can fall as well as rise in value, so you could get back less than you invest.

Exclusions

Fund groups or fund managers might take an exclusionary approach, which means companies that don’t meet minimum moral standards won’t be considered for investment.

For example, AXA Investment Managers has a group ecosystem conversion and deforestation policy. They commit to ban "investments in firms facing significant biodiversity related controversies in sensitive sectors (Palm oil, Soy, Cattle & Timber) and regions”. These exclusions are applied to all AXA funds, including the AXA WF Framlington UK fund, which features on the Wealth Shortlist.

The AXA WF Framlington UK Fund is an offshore fund, so investors aren’t normally protected by the Financial Services Compensation Scheme. The fund also invests in smaller companies, which adds risk.

More about the AXA WF Framlington UK fund, including charges

AXA WF Framlington UK Fund Key Investor Information

Some funds take exclusions one step further. They avoid companies operating in a range of areas some might find unethical, from tobacco producers to weapon manufacturers, although the exact exclusions will vary from fund to fund. One of the benefits of investing a pension in funds with exclusions is you can align your investments with your morals. You can find out whether a fund has exclusions on the fund groups’ website.

By nature, screening leaves fund managers with a smaller selection of investments to choose from. This could impact performance when excluded areas outperform the market, while also boosting performance when those same areas underperform.

Engagement

When a fund manager owns shares in a company, they get certain rights, including a say on how the company’s run. They can attend shareholder meetings and vote on management’s proposals. This gives shareholders a chance to have a say in how sustainable practices are handled in future. That’s even more important for companies that have a large footprint on the environment around them.

The bigger a fund manager’s stake, the more bargaining power they have. Some fund managers increase their bargaining power further by working with other managers and collectively negotiate with companies to achieve shared goals.

The Troy Trojan Ethical Income fund looks to provide rising income and the potential for capital growth, while also attempting to minimise losses in a falling market. Manager Hugo Ure doesn’t invest in areas some investors might deem unethical, like tobacco and fossil fuel providers. He also engages with the companies he does own to bring about improvements.

Ure is currently leading a collaborative investor engagement to address pizza delivery company Dominos’ impact on deforestation and biodiversity. The company uses palm oil as one of its core ingredients.

This fund is also on our Wealth Shortlist. The manager has the flexibility to invest in smaller companies and derivatives which, if used, adds risk.

More about Troy Trojan Ethical Income Fund, including charges

Troy Trojan Ethical Income Fund Key Investor Information

Investing in solutions

Some funds take a more proactive approach by investing in companies providing solutions to environmental and social problems.

Liontrust SF Global Growth is a sustainable global equity fund that invests in companies making a positive contribution to society or the environment. The fund invests across three core themes – better resource efficiency, improved health and greater safety and resilience.

Saving our forests falls under the better resource efficiency theme, as it contributes to the circular economy – reducing, recycling, and reusing.

One of the fund’s key investments is DocuSign, a US company digitising agreements and contracts, thereby removing the need for paper. Since 2003, the company’s saved over 20 billion sheets of paper and 2.5 million trees. 

The managers have the flexibility to invest in emerging markets and derivatives, which adds risk.

More about Liontrust SF Global Growth fund, including charges

Liontrust SF Global Growth Fund Key Investor Information

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    Our fund research is for investors who understand the risks of investing and that investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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