How you could be more ethical with your finances
We get it. You refuse plastic bags and your toothbrush is bamboo. Now what?
How do you reduce your impact on the environment without ending up knitting your own tofu in a muddy off-grid yurt?
The headlines are worrying and the documentaries bleak, but it can be difficult to make balance wanting to be environmentally responsible with real life, work and family stresses.
How to get started
Being eco-friendly doesn’t immediately shout “cash saving”, at least not with all the #eco Insta shots floating around of whitewashed linen in sunny walled gardens.
But being environmentally aware isn’t just about paying £10 for four metal straws. It’s way simpler than that.
Because everything you can think of has both a financial cost and a carbon cost, being green is more often about taking care of what you have.
"Brits are among the worst e-waste offenders, ditching an average of 24 kilograms of tech per person every year"
Mending, borrowing, renting or, at a push, buying second-hand will keep more cash in your pocket while reducing your impact. It’s a win–win.
Take your laptop, for instance. You can pick up a similar second-hand product for as little as 20% of the cost of a new one. Not only are you doing your bit for the environment, but you’re getting a good deal too.
Brits are among the worst e-waste offenders, ditching an average of 24 kilograms of tech per person every year, according to a UN report. So, retraining our purchasing decisions could make a massive difference to the environment.
Slot the saving away for that all important emergency cash stash or holiday fund.
But these measures pale into insignificance compared with the carbon, pollution and cash savings you could make by tackling some of the services we rely on every day.
Go green with your household bills
About 40% of the UK’s CO2 emissions is created in the home, according to the Committee on Climate Change. Making changes in domestic energy use can therefore really make an impact.
As the UK is now in an energy crisis with prices surging, switching suppliers, for example to ethical energy choices that offer electricity sourced from renewables such as wind and solar power, is complicated.
In current circumstances, reducing your electricity and gas use as much as you can may be your best option. A few small tweaks, such as keeping an eye on the thermostat, and throwing on a jumper rather than cranking it up in chilly moments, can save cash and carbon. Remember to also put lids on pans when cooking, and draw curtains as soon as it gets dark.
You can read more energy-saving tips here.
Meanwhile, though you can’t switch your council or water supplier to a more responsible option, you can always challenge them on their actions and policies.
You can also flex your voting muscles in elections based on past attitudes to, and future promises on, climate and pollution.
Don’t overlook your banking choices
Half of our personal annual carbon footprint is the result of the way we bank. This includes everything from savings and lending to mortgages and investments.
The links between our cash and the environment might not be immediately obvious. However, the companies that your bank lends money to, or in which it invests, may not align with your ethical values and concerns.
For instance, research from Bank Track shows that in the five years since the Paris Agreement, the world’s 60 biggest banks financed fossil fuels to the tune of US$3.8 trillion.
Most of us – 80 per cent – have no idea what our bank invests in, according to research for Market Forces, a campaign group battling to stop banks funding climate change.
But when customers hear about their bank’s climate record, one in 10 say they are now “very likely” to switch banks, according to the survey.
"Moving your pension savings to sustainable funds can have 27 times more of an impact on your personal CO2 footprint"
So where could you move your cash to do your bit for the planet?
A deep dive into the internal policies and voting records of the UK’s 36 key providers by Ethical Consumer magazine found just two – Ecology Building Society and Triodos Bank – got its top rating for climate responsibility. Elsewhere Nationwide, Co-operative Bank and Starling emphatically state that they do not invest in any fossil fuel companies.
Then there are our investments.
Finding a climate-friendly solution for our investments through our ISA choices sounds like a nice problem to have but it applies to more of us than you might expect.
Three-quarters of UK adults now have a workplace pension, for example, and almost all of us have stuck to the default allocation.
There’s around £3 trillion invested in UK pension funds and these funds can invest money on our behalf, into companies that do harm, supply chains that are unsustainable, and industries that accelerate climate change.
It’s worth checking with your employer how that pot of cash is invested to ensure it matches your preferences on climate responsibility (and everything else for that matter).
If you find your carefully squirrelled-away savings are invested in weapons, tobacco products, fossil fuels or industries that don’t align with your values, you could make a change.
And the impact could be greater than you’d think: research from Nordea, a leading Nordic universal bank, suggests that making sure your investments are sustainable can have 27 times more of an impact on your personal CO2 footprint.
Don’t overlook the impact of your children’s finances
Whether it’s the nest egg, or the kids’ Junior ISA, you can’t have a conversation about investments without ethical or green questions cropping up almost instantly – either when discussing businesses to invest in, or, more often, the funds that invest in a whole range of them on your behalf.
Why do these questions come up? Because a growing awareness of the climate crisis is seeing an increase in investments in ESG – Environmental, Social and Governance – funds.
"Money invested in ESG funds more than doubled in 2020"
With the world waking up to the risks and opportunities around climate issues, and governments starting to introduce laws to help save the planet, more people are looking at ways to make a difference and become more environmentally friendly. Therefore, there’s a greater appetite for investment products to align more with people’s ethical values and concerns.
Even as the pandemic hit us, the amount of new money invested in ESG funds more than doubled in 2020 compared to the previous year, according to American financial services firm Morningstar. Global sustainable fund assets had reached US$3.9 trillion at the end of September 2021.
However, it’s important to check exactly what you’re investing in is actually environmentally friendly as “greenwashing” – the false claim of being green – is rampant.
To wrestle back some clarity and avoid getting lost in dense information, take a step back and have a chat with an independent financial adviser about your ESG priorities before exploring the subject further.
You could discuss, say, whether protecting the environment is less, equally, or more important than supporting businesses that promote women’s rights or fair pay.
Are you most excited by clean energy or green technology, for example?
Will you only invest in businesses that are already smashing it out of the park on the green credentials, or are you willing to invest in companies that are simply improving?
With all that set up you’ll be in a great spot to decide what ESG means to you.
Finally, your financial adviser can help you work out what you need and want from your investments in terms of returns, your risk appetite and timescales, and how that all fits to your wider financial circumstances.
Don’t forget that the value of investments can go down as well as up and you could get back less than you paid in, so think carefully before investing and always prepare to invest for the medium to long term (five or more years).
Get on top of that little lot and you’ll be on your way to reducing your carbon footprint and saving a bunch of everyday money – all without costing the earth.
The information in this article is not to be taken as financial advice. Before making any financial decisions always do your research or speak to a financial adviser.
3 things to do right now...
Check out the Ethical Consumer website for tools and resources for making ethical choices.
Check the ethical credentials of a wide range of saving and investment products with The Ethical Investment Research Service.
Mend, borrow, rent, or buy second hand.
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Don’t forget that while you may think that this article is brilliant, it is intended for information purposes only and should not be mistaken for financial advice or recommendations.