‘Up to 10% of your pension could be invested in fossil fuels, 2% in weapons’

 “Let’s say we stood on Grafton Street and we asked 100 people do they want their pension or their cash invested in fossil fuels, weapons, or tobacco,” suggests Ciarán Hughes, a certified financial planner and founder of Ethico, a brokerage that promotes ethical and sustainable investing. “You can be pretty sure that almost 100 per cent of Irish people will say no.”

However, for those enrolled in a legacy Irish default pension scheme – in internet clickbait parlance – the answer might surprise you.

“If you looked at their pension statement or you took a deep dive under the bonnet of what they’ve invested in, you will find anywhere between 5 and 10 per cent in fossil fuels, about 2 per cent probably on average in weapons and maybe 1 per cent in tobacco.”

The good news is the main pension providers in Ireland now offer Environmental, Social and Governance (ESG) funds that limit or exclude controversial companies like those in arms manufacturing or tobacco.

But some of the companies in these portfolios may still prove problematic, depending on your outlook. For example, you might be environmentally inclined but find mining and extraction feature heavily.

And if you’re one of the many Irish investors who choose to put their money in an index fund that tracks the S&P 500 – the 500 top-performing companies in the US – it is likely you are exposed to these firms.

In this episode of Better with Money, Hughes discusses the merits of ethical investing over traditional investing. He explains his three approaches: “Exclude the bad, invest in the good and push the rest to improve.”

He also outlines the greenwashing tactics, “like a wind farm on the front of a brochure”, that can be used to sway potential investors, creating the impression that a fund is more sustainable than it really is.

So how can you tell where your money is going? How reliable is a fund’s “fact sheet”, and just how good are the returns on an ESG fund anyway? Are you taking more of a risk with your money?

You can listen to the conversation on the player above or search for Better with Money wherever you get your podcasts, but please note, this is for information purposes only and does not constitute financial advice.

• This episode is brought to you in association with Standard Life