Pension scheme members will be given powers under new government rules to hold their schemes to account over how social and environmental factors impact their investments.
Trustees will be required to produce a policy that includes an assessment of the sustainability of their investment decisions.
This policy will be available to members so they can make their own assessment of various risks such as climate change, poor corporate governance and socially harmful practices.
Until now, pension trustees have had a fiduciary duty to invest pension trust assets in the best interests of beneficiaries.
The Department for Work and Pensions says the proposals are not intended to “give any support to activist groups for boycotts or divestment from certain assets”.
Secretary of state for work and pensions Esther McVey says: “These new regulations will empower savers all over Britain, ensuring that their voices are heard when their savings are invested.
“As we see the younger generation who care more about where their money is going, they are also increasingly questioning that their pensions are invested in a way that aligns with their values. This money can now be used to build a more sustainable, fairer and equal society for future generations.”
The proposals are subject to a consultation period which runs until 16 July.
Socially responsible investing is increasing in popularity. A recent survey by Aon found that 68 per cent of institutional investors globally consider responsible investing important.
Last week, Legal & General Investment Management removed eight global companies from its Future World Funds range for not confronting the effects of climate change.