A report claims that environmental, social and governance (ESG) practices “can cost the average pensioner over £50,000”. The analysis by the Centre for a Better Britain warns that policies adopted by major investors “systematically penalise the defence industry” by denying cash at “precisely the moment when the UK and its allies recognise the need for large-scale rearmament”.
Political reactions
Shadow cabinet minister Mike Wood warned that “ESG rules are costing hard-pressed pensioners tens of thousands of pounds”. He told the Express: “Good investments that secure pensioners' futures should not be off limits because they do not fit with Lefty ideology. The Conservatives will scrap ESG reporting, relieving the burden on businesses and clearing the way for a focus on growth that delivers for pensioners and the rest of the country.”
Reform UK's Robert Jenrick – who is on track to serve as Chancellor if Nigel Farage becomes prime minister – said: “These ridiculous ESG rules are costing pensioners thousands of pounds. Pension funds should be maximising returns, not pursuing political projects.”
Impact on defence and industry
Report author Karim Henide described the impact on the defence sector, stating: “The result is a sector that underpins national security being denied access to capital on ideological rather than financial grounds.” He blames ESG policies for pushing up prices for consumers by piling on extra environmental and social costs as well as accelerating the “deindustrialisation” of Britain, with “carbon-intensive” industry going overseas.
His report calls for a change in the law to “prohibit banks from refusing basic business services to lawfully operating companies in strategic sectors solely on ESG grounds”.
Expert warnings
The Prosperity Institute’s Fred de Fossard, who authored the 2024 report Woke Capitalism in Britain, said that for the past two decades the Government has “suffocated Britain's financial services with regulations, mandates and taxes”. “All of these have a cost, and they are ultimately paid by all of us with smaller pension pots and worse performing ISAs,” he said. He warned that “green regulations, social engineering imposed on businesses, and expensive rules around listing on the London Stock Exchange have driven capital away from Britain, and we're all paying the price”.
Daniel Herring, head of economic policy at the Centre for Policy Studies, warned of the threat to pensioners, saying: “Brits are saving on the assumption that pension funds are free to manage their investments in a way that delivers the best possible retirement. Extraneous ESG requirements undermine this goal and mean people will be poorer that they otherwise could be in their old age, leaving them with a lower standard of living and potentially more reliant on the government or their children.”
John Longworth, a former director-general of the British Chambers of Commerce who now chairs the Independent Business Network which champions family firms, said such “woke policy” has “pushed businesses into making bad decisions” and is a distraction from the core task of “delivering and creating wealth through profits” which leaves retirees worse off.
Former pensions minister Baroness Altmann said she worried that screening companies on ESG grounds can “significantly impair long term returns”. She said: “Making political judgments about investments, especially when they merely follow certain strands of contemporary thinking, is not the most appropriate way to managing pension assets. For example, the move to exclude defence companies proved to be extremely costly once it became clear that there are still huge risks of attacks on western nations and defence budgets need to expand significantly which has led to significant rises in share prices for these companies.”
Sebastian Charleton of the Adam Smith Institute warned that “good intentions are no substitute for sound economics”, adding: “While public sector bosses virtue-signal by moving pension portfolios to these inferior products, it is ordinary pensioners who will bear the consequences.”
Report details and response
The report from the Centre for a Better Britain argues that a 45-54 year-old with a private pension pot of £80,000 risks suffering an “opportunity cost” of more than £50,000 over 25 years because of the impact of ESG on investment choices. It also voices concerns about the lack of democratic accountability, stating: “Decisions about what constitutes ‘sustainable’ behaviour are set by unelected technocrats, rating agencies and asset managers, yet they shape real economic outcomes for millions of people.”
The report describes how ESG policies routinely rule out investment in “sin stocks” such as “traditional oil and gas companies and “tobacco, alcohol and gambling firms”.
A spokesperson for the Department for Work and Pensions claimed the report relied on “outdated” claims, adding: “Trustees have fiduciary duties to act in members’ best interests based on their own assessment of what will deliver strong returns. We're working with industry and regulators to clarify how those duties apply in practice and support confident investment decisions. In addition to this, our new value for money framework, part of the biggest pension reforms in a generation, will let savers compare their scheme against the best in the market for the first time, tackling a performance gap that currently leaves an average member £5,000 worse off over five years.”
