THE SUNDAY TELEGRAPH:
Harry Brennan: 26 JANUARY 2020 • 5:00AM From page 9 of the Money Section
Why pension savers cannot afford to be ethical
There’s a climate crisis, but investors are increasingly relying on oil and sin stocks to survive, finds Harry Brennan
The world is currently on fire, according to the teenage climate change campaigner Greta Thunberg. Speaking at the World Economic Forum in Davos last week, the green activist demanded world leaders and money managers halt investment in fossil fuels and immediately, and completely, divest from “carbon assets” to avert a climate apocalypse and save the planet.
But can savers truly afford to put their money into exclusively ethical investments?
Pensioners in particular are in danger of exposing themselves to huge risks by ditching traditional dividend stocks. They rely on incomes generated by a shrinking pool of companies dominated by firms at odds with ethical or “green” investing.
British firms paid out more than £100bn in dividends last year, but the market is increasingly concentrated. Today more than two-thirds of payouts come from just 20 companies. More than half come from the top 10 payers and more than a third from just five firms.
This is largely because of the rising value of the dollar against the pound since the Brexit referendum.
Many of these firms generate their earnings overseas and have benefitted from a boost to profits and dividends, entrenching their dominance.
More than a third of the top 20 dividend payers are fossil fuel firms in the oil, gas or mining industries and were responsible for close to a quarter of the dividends paid out across the entire stock market in 2019.
Royal Dutch Shell Plc, the biggest income payer, gave shareholders more than £12bn alone, almost double the $6.5bn paid out by rival BP, which is the third-largest payer. The oil giants are favourites among British savers and both currently have a dividend yield of more than 6pc.
Shell, in which millions invest directly and through their pension and Isa savings, has not cut its dividend since the Second World War, and today pays £1.40 per share annually.
BP suspended its dividend in 2010 after a scandalous oil spill in the Gulf of Mexico, resuming it a year later. It has since grown the annual payout to 31p per share – an increase of 80pc.
Elderly investors are heavily dependent on so-called “sin stocks” to sustain their incomes, with tobacco and alcohol companies paying out $10bn last year.