Playing a part in protecting the environment can also come down to how you manage your finance (Photo: Getty)
Sustainable investing has become one of the most important shifts in the investment industry in a generation, says Myron Jobson, a personal finance campaigner at Interactive Investor
‘Green’ concerns from plastic waste to carbon emissions are at the heart of the cultural zeitgeist, and many of us do genuinely care and endeavour to play our part to help protect the environment. Recycling more, driving less, using energy more efficiently are oft-cited choices we can make in our day-to-day lives to lessen our personal impact on the environment.
You might not realise it, but it can also come down to how you manage your finance – how you bank it, how you invest it and ultimately how you spend it. There has a been a stark shift in strategies and actions towards sustainability in the financial industry in recent history, with financial services companies increasingly offering current accounts, savings, investments, mortgages and even loans among other products branded as ‘green’.
Even the government is trying to get in on the act, through new Green Savings Bonds from National Savings and Investments (NS&I) which will fund its environmental projects such as wind and hydrogen power, as part of plans to meet the government’s net-zero carbon emissions target by 2050. The wealth of environmentally conscious products across all areas of finance can be quite daunting, but the first step towards greening you finances can be as simple as reducing your paper trail.
If you’re anything like me, written correspondence from my bank informing me that my savings continue to earn 0.01 per cent in interest is destined for the bin – right after I rip the letter into a zillion pieces out of sheer frustration of the paltry return. List all the financial institutions you have an account with and consider making the switch to paperless (if possible) to get statements, mail or both all in one easily accessible place, digitally. Switching to digital correspondence could also save you money and every paper saved is a win for the environment.
You might also want to find a bank that puts sustainability at the core of its processes – notable mentions go to Triodos Bank, Ecology Building Society and the Co-operative Bank which have trailblazed the green and ethical banking space.
Keep in mind that banks invest the money you deposit with them to make a profit. Some of these investments could clash with your convictions – would you be happy knowing your cash has been used to invest in fossil fuels, armaments, tobacco etc? UK banks are increasingly shedding more light on sustainability-related information. If in doubt, ask your bank – and consider switching if your cash is being invested in sectors that are not in line with your convictions.
And don’t forget about your pension. Many of us are guilty of not paying our pension the due attention it deserves, and we may unwittingly be invested in things we consider ethical no-nos through inertia. Again, if in doubt, find out. Many pension funds have ethical options available, but if you can’t find options that suit you, consider investing your through a SIPP (self-invested personal pension) which allows you to cherry pick using any number and combination of sustainable funds, investment trusts and shares. If you have an ISA with an investment platform, you can also build your own sustainable portfolio based on your own principles.
How a fervent passion and desire for environmentally sustainable living translates when it comes to investments isn’t so obvious, as what constitutes as a ‘green’ is intrinsically subjective.
Shell, the oil company, is a good example. The inclusion of the company in the FTSE4Good UK 50 index – which tracks the UK’s 50 largest companies which demonstrate strong ESG practises – may raise an eyebrow, but some investors argue that the company boasts ‘green’ credentials because of its renewable energy division as part of plans to become a net-zero emissions energy business by 2050. The FTSE Russell Group clearly subscribes to this school of thought – but you might not (I certainly don’t). When it comes to broader sustainable issues, others may raise a curious eyebrow that Nestle is in the FTSE4Good.
Greenwashing
Sustainable investing has become one of the most important shifts in the investment industry in a generation. According to latest figures from the Investment Association, assets held in ‘responsible investments’ (although again, the idea of ‘responsible is subjective’) almost doubled over the past year to the end of May to £73.2bn from £37.5bn – and demand for sustainable solutions is predicted to remain on the upward trajectory.
With unprecedented amounts being invested into sustainable funds, buoyed by growing evidence that such investments can and do outperform mainstream rivals, asset managers have rushed to launch new products to tap into the demand.
However, not all investments labelled green is genuine in its pursuits of a cleaner planet or more equitable society. Greenwashing – unsubstantiated or exaggerated claims that an investment is environmentally friendly – is a real problem, and it is difficult for investors to distinguish between ‘true green’ from ‘green washed’. False or misleading claims about “greenness” threatens to scupper investors’ trust in the sector and the FCA is increasingly turning its attention to this issue.
More and more people want to get ethical with their investments, but the current regime of climate related disclosure as well as the availability of data related to broader environmental, social and corporate governance (ESG) considerations is not up to scratch. But progress is being made. The Treasury recently formed an independent group tasked to crackdown on “greenwashing” in investments and make it easier for investors and consumers to understand how a firm is impacting the environment. The FCA is looking at this too.
However, for investors wedded to investing in a way that closely aligns with their moral compass, there is no substitute for doing the legwork themselves. This means looking under the bonnet of every product purporting ESG credentials to ensure compatibility.
In the absence of unified ESG framework, interactive investor publishes a long list of more than 140 ESG funds, investment trusts and ETFs available on the platform broken down into three interactive investor ACE investment styles: Avoids, Considers and Embraces, to help match ethical investors with solutions that align to their morals. We also maintain ACE 40, a list of ethical funds we rate. For those yet to get started on their investing journey, ii also recommends a range of sustainable ‘Quick Start’ funds for beginner investors. The BMO Sustainable Universal MAP range offers Cautious, Balanced and Growth options for different risk appetites.
The growth, variation and innovation behind environmental conscious financial products shows that we are in the midst of a ‘green revolution’ in mainstream finances. There is already a host of options that can make your money a little greener and your conscience a little lighter.
A principal challenge for financial services companies will be to create effective and far-reaching market-based solutions to address a range of environmental problems, including climate change, deforestation, air quality issues and biodiversity loss. Effective cataloguing of such products, as well as greater availability of data to allow people to scrutinise green credentials, is a must.
Article Credit: inews