Almost a quarter (25%) of employees named green pensions as one of the top benefits they would expect from a new employer.
Nearly three quarters (72%) of employees said it was important for their company to invest their savings sustainably, demonstrating a commitment to taking environmental and social issues seriously.
Despite the demand from workers, the report showed 34% of employers don't currently offer a sustainable pension scheme to workers.
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Knowledge of what constitutes a green pension were where companies fell short. Just 25% of companies were knowledgeable about green pensions, while 37% said they had never heard of them.
Pete Hykin, co-founder of pensions provider Penfold, said an increased interest in environmental, social and governance (ESG) issues is leading workers to prioritise them for their pensions.
He told HR magazine: "The record temperatures seen across the UK will have prompted many to evaluate what impact their behaviour is having on the environment. Across the board though, interest in ESG has grown in recent years. While ESG as a concept was unheard of even 20 years ago, it now guides decision-making for businesses and individuals.
"More consumers are now switching to ethical solutions, and savers are increasingly looking for products that align with their beliefs whilst delivering growth. As a result, the market has seen an influx of products with sustainable options to suit a wide range of risk appetites, and it’s likely that demand for these will only grow."
Companies also focused more on the environmental aspect of ESG while neglecting social and governance.
The report showed 43% of businesses identified a green pension as a fund which avoids investments in highly polluting industries, but only 22% acknowledged the social and governance outcomes, such as the fair treatment of workers.
Hykin added that employers need to discuss with workers to see what pension plan works best for them.
He said: "Employers need to assess what aspect of pensions is most important to their team; is it the ESG credentials or funds that align with their religious beliefs, i.e. Sharia funds. From there, businesses must opt for a pensions provider that can cater to those needs, giving employees peace of mind that their pension isn't working against their ethics and values."