Ethical investing by spending an hour or so switching your pension fund could be many times more effective at reducing your carbon footprint than a lifetime of becoming vegan and giving up flying combined, according to the campaign group Make My Money Matter. It is keen for more of us to understand the link between where our retirement savings are invested – all £3trillon of them – and what they are, or are not, doing for the planet.
A big claim, but there’s no doubt that many of us, in attempts to boost our environmental credentials, shopping local, considering an electric car, worrying about the plastic wrapping on our apples, neglect to think about the way in which our personal finances could be undermining our best intentions.
Your money, whether it’s funnelled into shares pegged to the FTSE 100 by your company’s pension provider, or sat with a bank that lends it out to other companies, might be being invested in sectors of the economy you’d not usually financially support. They could include tobacco, or gun manufacturing, say, fossil fuels, fast fashion, companies that don’t pay their tax bills.
“People don’t know whether their pension is invested in line with their values firstly because many people are not aware their pension is invested, full stop”, believes Rebecca O’Connor, head of savings and pensions for the investment company Interactive Investor.
She was troubled by the 53 per cent who responded to the question, “Is your pension invested in a way that aligns to your moral values?” in Interactive Investor’s Great British Retirement Survey 2020, with a “don’t know”.
“Information about the nitty gritty of what our pensions are invested in, the companies, countries and sectors, is sometimes, though not always, available on pension provider websites, but you have to look for it, it won’t come to you. So you have to be quite motivated in the first place to hunt around.”
Jill Jackson is CEO of The Big Exchange, the investment platform, co-founded by The Big Issue, dedicated to promoting funds that invest in companies making a positive difference to people and planet.
She believes that while the conversation is changing, there is still a lack of awareness about how much you can influence with your choice of where to save or invest.
“Over dinner one night my sister-in-law was ranting about big pharma, for me to point out that her pension was probably funding it and her retirement was depending on big pharma companies doing well. She was horrified, she’s done something about it now – exercising her choice to move her money. But I think there is often a lightbulb moment for people…
“I’d never had a conversation until the last six months or so with my girlfriends about where our pensions are, but there is a growing sense that we should know. The Boohoo scandal, people talking about the fact they don’t like the way that a company treats their staff. These choices and decisions you make can create not just a financial return for you but a societal impact that is very meaningful.”
While many of us have more money saved in a pension than anywhere else, you can use all of your finances, whether it’s your everyday bank, the savings account you opened for your kids, or your rainy-day investments, to support businesses that you believe are doing positive work towards improving the environment, or society, or as the two are so often intertwined, both.
“With time we will bring this to life for people”, says Jackson “showing that your investment has helped advance the green economy, it has offset this much carbon, it has created this many jobs.
“It’s important for us to offer consumers new funds that are really pushing the boundaries and changing what our future could look like. We recognise that ultimately people invest money because they want it to grow, and there is now more data backing up the fact that sustainable, ethical and impact funds do better. People want more than just that financial return.”
Tony Burdon, CEO of Make My Money Matter agrees. “The choice on where to keep, save and invest our money is more powerful than we think.
“Since July 2020, many of the UK’s largest pension providers, including Nest, Scottish Widows and Aviva, have agreed to align their portfolios with robust net-zero targets. But this is just the start. We have a long way to go before our money is truly helping tackle the climate emergency, rather than fuelling the fire.
“We want to see schemes invest in companies that are building the health of our planet and society through the likes of social housing, renewable energy, green infrastructure, healthcare, and education.”
How to use your personal finances to help people and planet:
Understand ethical investing and where your money is invested now
If you have an employer and are earning over £10,000 with them, you will have been automatically enrolled into a workplace pension. Look at where it is invested.
You should be able to see this by logging into your account or check with your pension provider. If you don’t know who your pension provider is, ask the HR department.
O’Connor says “You might find the information you are looking for on the provider’s website but make sure you are looking at the the fund that you are in. Each provider can have a number of funds for workers at different ages or with different risk profiles.
“Look for information about the provider’s general level of commitment to sustainable investing, they might have a report on this you can view.”
Do the same for any investments you might hold, for example through a fund via a stocks and shares Isa. Look at the individual holdings – the companies – that are in the fund, usually on a “key information” document. You can then work out whether the companies in the fund match your values.
O’Connor adds: “Bear in mind that funds can change their holdings and if they don’t have a specific mandate to exclude a certain type of company, they could end up appearing in your fund later on.”
Think about what “ethical” investing means to you
One of the challenges of ethical, sustainable or positive impact investment is that the terms can be subjective. There is no one framework for the whole investment industry to define what an ethical fund, for example, must contain.
Ultimately, you have to make the call.
Jackson points out that some sustainable funds will contain oil companies that are committed to developing cleaner technology, for example. “You might have a view that you’re quite comfortable with funding a traditional energy company or an oil and gas company because your investment is funding transition for them to reduce the amount of revenue they get from fossil fuels, or increase the amount of revenue they get from renewables.”
The Big Exchange is focused on giving consumers the information to see what their money is doing. “We hold the funds that we offer to a standard, independently assess them, and expect transparency.”
Lobby your employer for a greener pension
If you have looked at where your workplace pension is invested and you’re not happy, see if you can switch to a more ethical fund. This will depend on whether your employer offers one, however. If they don’t, ask them why not and see if they will. Make My Money Matter has a template email that you can send to your provider to get them to switch to net zero.
Another option, says O’Connor, is to consider starting a separate personal pension, like a SIPP, and asking your employer if they will pay into that for you instead of the official workplace scheme.
“You won’t want to give up employer contributions to your pension in your quest for a more palatable fund, though. These are extremely valuable when building up your retirement pot for the future.”
You could also consider moving old work pensions. Pensionbee, for example, helps you trace old pension pots and let’s you reinvest them into a new fund, including one that is fossil-fuel free.
If you are self-employed the pension provider Nest offers an ethical fund you can pay into with a regular direct debit.
Don’t forget about your bank account and cash savings
A new tool by campaign Bank.Green let’s you find out at a tap where your bank invests its cash. Enter your country and the bank you use and it will provide a report on your bank’s fossil fuel record.
It’s easy to switch bank accounts without fuss using the Current Account Switching Service.
Recent research by Triodos found that seven in ten UK consumers say banks and financial companies need to be more transparent about how they invest their customers’ money, half think financial providers actively hide the sectors they invest in.
Triodos offers current accounts, savings accounts and investments, and publishes on its site details of all the organisations – which must benefit people and planet – that it uses customer’s money to lend to.
Charity Bank offers a range of ethical savings accounts and lends savers money only to charities and social enterprises. At the moment this also includes creating capital loans for those experiencing disruption to their normal business model as a result of Covid-19.
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