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Should greening your money be high on your to-do list?

Becky O’Connor

18th September, 2017

Investment is one way to ensure your impact on the environment is as positive as possible - and may even change the attitudes and behaviours of the industries where green investment takes hold. All investments involve risk and you can lose your money. But some claim to have less impact on the environment, says BECKY O'CONNOR

One day, perhaps all companies will be green. But you don’t have to wait until then.

Grappling with feelings of powerlessness is the wont of those committed to environmental causes. How do you do more to save the world, once the solar panels are on, the electric vehicle purchased, the composter replete, the recycling sorted and a dozen Avaaz petitions signed?

We’re seeing great strides with electric vehicles and greener energy suppliers. But our personal finances are lagging behind. Money makes the world go round – so thinking harder about where you put yours could be the biggest thing you can do for the planet.

Personally speaking, I’ve never felt a greater sense of personal power than when I put my monthly ISA savings in an impact fund that only invests in companies offering solutions to global environmental challenges. It took a while for the penny to drop.

Then my career surprised me

I had always been an environmental activist at school and university, setting up my own wildlife magazine when I was 9, taking WWF petitions round the neighbours, getting cross about everything as a teenager and eventually choosing to go into environmental journalism, with a stint as the first intern at The Ecologist, this very magazine. 

Then my career surprised me and I ended up writing about money. My first journalism job was writing about personal finance as a correspondent for The Times. I was in the know about what were the best savings and mortgage rates, which were the good and bad companies for customer service and which you wouldn’t touch with a barge pole.

I never had cause to report on what any financial services firms actually did with their customers’ premiums – how they invested the millions of pounds we handed over to them monthly, and whether their investment choices were supporting or harming the planet. 

Soon after I left The Times, I joined Trillion Fund, a former renewable energy crowdfunding company. This opened my eyes in a big way. If you could get decent returns from investing in the stuff that is actually saving the planet, I thought, why would you ever invest in anything else?

The problem was (and still is) transparency – people just don’t have information about where their money goes, and also culture – we have come to believe that good things don’t make money. And sacrificing our own savings for the cause seems like a step too far for many.

This values shift

I felt like I suddenly knew how to make a meaningful difference. But personal finances are rather like a slow moving oil tanker – it takes time to get them going the other way. 

One of the first things I did with my own money was to open a stocks and shares ISA in a sustainability focused fund that was also well respected for its financial returns.

It has so far been tricky for those wanting to do the right thing to find options, without doing a lot of research. That looks set to change, as the rise of the “millennial” generation (under 35s) and the increasing power of their £s, seek destinations for their cash that make a difference to the planet. This values shift is putting pressure on financial services firms to offer more sustainable products. But there are some leading the charge.

The fund I chose – WHEB Sustainability – has performed well from a financial point of view since I opened it 16 months ago too – returning 17 per cent over the period and neatly demonstrating the point that taking an ethical stance with money does not have to dampen your rewards (although unlike saving, investing comes with the risk of losing your money, too).

I thoroughly researched this choice – the team at WHEB are impressive, co-founders included Ben Goldsmith. Its now headed up by George Latham and Seb Beloe. The firm is a certified B corporation – no mean feat. Impact is its key USP, not just an add on to make the fund look good. You can read its annual report http://www.whebgroup.com/media/2017/05/WHEB-Impact-Report-2016-1.pdf.

Financial merit

Impact investing means investing in firms that are actively involved in creating solutions for the world’s problems, not just “doing no harm”. Its top holdings include firms such as Intertek, a safety testing company that carries out, among other things, fuel testing. Acuity Brands, another top holding, is an LED lighting producer, while LittleFuse, the third biggest, is a US producer of vital electrical components.

The £2,000 odd I have contributed to the fund in that time not only feels like money well saved from a personal point of view, it feels like a bigger personal contribution to CO2 reduction than I could ever make through my domestic efforts in one year. WHEB even has a calculator on its website to allow people to see how much CO2 they have saved by investing in the fund.

WHEB is just one example of this small but growing number of fund managers and other financial services companies who say they are genuinely committed to these causes and with the knowledge and experience to make the investments stack up by their own financial merit, too.

Good With Money, my own website that is dedicated to more responsible personal finance, recently launched a “Good Egg” kitemark that can only be awarded to financial services firms that demonstrate high environmental and social impact. You can also check its directory for firms doing more than their fair share.

How to get into impact investing

Green investment funds have been around for years but not considered a mainstream thing – more the preserve of the ultra-ethical. 

But within fund management circles, ESG – short for Environmental Social and Governance – is a growing research area. That’s because a now significant body of work, including a recent heavyweight study by Barclays, suggests that better ESG records equal better performance over the long term. This means that all investors – not just those who have their own allotments and wear Patagonia clothing – are taking an interest. 

If you want a greener stocks and shares or Lifetime ISA, you can check out this review of the top impact funds on Good With Money. Equipped with this list of star-rated funds, you could then head to one of the large investment platforms, which include Hargreaves Lansdown, Charles Stanley Direct and AJ Bell, and search for the funds you are interested in. Tip: make sure the platform lists the funds you are interested in before you sign up to open the ISA.

A growing number of crowdfunds, both peer-to-peer loans and equity investments, also offer greener returns. Abundance Investment has been around for nearly five years now and offers renewable energy investments of various kinds.

There’s your pension

These can be held in an Abundance Innovative Finance ISA, which offers tax-free gains up to your £20,000 annual limit, just like other types of ISA. Other crowdfunding platforms such as Crowd2fund and Crowdcube also list green businesses from time to time, so it’s worth getting on their mailing lists. Ethex, another platform, lists community share offers – two of its current projects are African solar investments.

What if you don’t invest? Well, hopefully, there’s your pension. A surprising number of pension providers offer ethical options, which, more often than not, are better for the environment than standard portfolios. NEST, which was created for auto-enrolled pensions, offers an ethical fund; Aviva offers a self-select pension option that allows you to invest your pension in a range of different sustainability funds; Standard Life also offers an ethical pension fund. 

If you invest in a Self-Invested Personal Pension (SIPP) you will generally have your pick of sustainability funds into which you can invest for your retirement, but the range varies according to the investment platform you are using and SIPPs come with higher charges than regular pension funds.

If you are interested, contact the platform to ask for their full range of ESG or “impact” options – the person you speak to may not have a clue, but can find out - the more demand we show for more responsible investment options, the more focus they will give this niche but growing area of interest.

Everyday banking and saving

Your daily money options can also be greener. Big high street banks invest customers’ money all over the globe into all sorts of businesses, including fracking, mining, weapons and other stuff you probably don’t care much for. Retail banking and investment banking divisions are set to be ring-fenced from 2019, marking (hopefully) a return to more traditional banking as lending and saving institutions. 

But you can already get your monthly salary deposit on the planet-saving side by opening an account with Triodos Bank, which has just launched current accounts.

Triodos only invests customers’ money into sustainable businesses and is a very positive choice. Co-operative Bank, beset by financial woes of late, remains a good choice if you want to avoid the bad stuff – it won’t invest in environmentally harmful activities – you can read its ethical policy here.

If you want to keep your money on the straight and narrow, you could do worse than a building society. Nationwide offers the full range of banking options and as a mutual (owned by customers not shareholders), it has a very different mandate to profit-hungry banks.

It has maintained its Carbon Trust Triple Standard for waste, water and carbon reduction, however, Ethical Consumer rated it poorly for environmental reporting in 2016. Ecology Building Society currently offers eco-mortgages on self-builds and renovations. 

Naturesave and Evergreen are two insurers that are fundamentally committed to environmental causes, and are worth checking out when it comes to your renewal dates.

One day, perhaps all companies will be green. But you don’t have to wait until then. By choosing providers that are already blazing trails, you can make the green money revolution happen even faster.

This Author

Becky O’Connor is founder and editor of Good With Money.

 

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