Veronica Weisser: Financing retirement is a sustainability challenge

To me pension systems and retirement planning—if thoughtfully implemented—are the essence of financial sustainability.

When a country lacks financial sustainability, for example when an aging population has not saved enough for pensions and old-age care, ever more tax income is diverted to cover their needs, resulting in a lack for future-oriented investments. Thus, ESG-sustainability goes hand in hand with financial sustainability.

Additionally, retirement planning is structurally similar to other sustainability challenges. First, each has a long timescale and faces a substantial level of uncertainty. Second, both are about making trade-offs today for a better tomorrow—on an individual and societal level. Our research reports consider how societies' decisions today impact financial sustainability, government spending, and tax burdens for future generations. Third, neither topic is politically easy to tackle. The higher the average age of the voting population, the more politicians feel pressured to put the needs of the older generations before those of the younger. In Japan, for example, pension spending has risen sharply while per capita spending on environmental issues and childcare, which particularly affect younger generations, has fallen behind.

In contrast to the pension space, where sufficient sources of high integrity data are available, we have an enormous data problem in sustainability. While progress has been made, we need to accelerate efforts on data depth and quality to improve transparency. This is important as regulation is advancing rapidly, and companies will be forced to measure and report on more sustainability criteria. Furthermore, we require detailed and reliable data to ensure decision-making on sustainability is both efficient and effective to facilitate our engagement and our credible communication with stakeholders and the broader public to achieve buy-in and motivate individual action.

Switzerland is making progress, but we need to accelerate on many fronts. Switzerland's direct democracy and the advanced age of the median voter can be a hurdle to implementing fair and efficient solutions—on pensions and broader sustainability topics. Regarding climate change, rigorous carbon pricing—which is considered by economists to be one of the most efficient measures to reduce emissions as it induces behavior changes and can be cost-neutral over generations—was rejected due to the expected impact on petrol and goods prices, even though the revenues would have been fully returned to the population. Instead, legislation that creates incentives through subsidies from which older generations benefit more has been accepted by voters. Thus, the burden has been shifted to younger generations that will pay more taxes over the coming years to fund these subsidies.

Financial institutions have a responsibility to support building owners in achieving a lower level of emissions from buildings, e.g., by providing mortgages for home renovation and retrofitting at lower cost if these are linked to sustainability efforts or by educating clients on their CO2-footprint and connecting them with partners who can help them reduce it.

A challenge is that many homeowners older than 55 think they won’t live long enough to experience the benefits of green retrofitting.

This is often a misconception—they have a remaining life expectancy of two to four decades, and their children will not want to inherit a building that belches CO2. So, the key is convincing homeowners that better insulation and cleaner energy sources are the right thing to do from a moral and financial standpoint—for their family and for society.

Last year the Institute published several reports on the retrofitting revolution—we are passionate about the difference we can make as a financial institution.

We need to make clear to clients that embracing heat pumps, solar panels, and improving insulation presents an opportunity to secure the value of a property, to become more independent from volatile energy markets, and to support Switzerland’s emissions goals.

I think demographic change and its implications are not considered often enough when planning sustainability solutions. The global population is expected to grow for some time to come, despite declining birth rates and shrinking populations in many countries. Overall, demographics substantially impact nearly all dimensions of sustainability, but sometimes in opposite directions. For example, low birth rates are negative for the financial sustainability of governments and pay-as-you-go social security systems. Additionally, aging populations can result in weak governance as politicians pander to older voters, undermining long-term thinking and the willingness to redirect today’s tax dollars to the benefit of the environment and future generations. At the same time, shrinking populations can contribute to easing the pressure on ecosystems, reducing emissions, and lowering the burden on education systems. The question of how local- and country-level demographics impact the efficiency of sustainability solutions on offer deserves more attention.

The longer we live and the fewer children we have, the more money we need to save and invest ourselves to fund lives that can be lived comfortably until the very end.

Many people expect pensions to flow from the government purse or the pension funds, when in fact the demographic or economic environment have led to a very unsustainable setting for many, potentially even requiring restructuring and reconsideration of benefit payments. Ultimately, these expectations unfairly burden future generations. As a society and as individuals we need to stop pushing ecological and financial burdens onto future generations.

I do simple things like picking up rubbish off the road or along a hiking trail. I remind my family about switching off lights, not using too much water and not turning up the heating too much. Similarly, I tend to err on the side of limited consumption and instead save more for my retirement, which fits well with my natural frugality and my tendency to plan for the long run. The truth is that most of us can manage with less and investing that money in one’s retirement means taking responsibility today, for tomorrow. I invest in sustainable investment solutions, while being aware of both their strengths and limitations.

As my family lives overseas, we do fly more than I feel comfortable with. We buy CO2-compensations for our flights, even if this is an imperfect solution. In fact, I calculated the total CO2-emissions me and my family have caused over our lives so far and compensated all, and we continuously compensate running emissions monthly. While offsetting is not an ideal solution, at least in this sense we manage to lead “Net Zero lives.”

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