Divesting your money from fossil fuels and unethical businesses is time well spent. But sorting through your current accounts, savings, investments, pensions, insurance products, and mortgage can be a minefield. Here’s the journey I’ve been on to turn my money green, and some hints and tips that will hopefully help you do the same.
In January 2020, I pledged to divest my money from fossil fuels and other unethical businesses. So, how did that go? Well, excuse the overused millennial phrase but…it was a JOURNEY! Before I get into the gory details, you might be wondering what I mean by divesting and why it’s something that Green Warriors should consider.
Well, according to research by the Rainforest Action Network, 35 banks have invested USD$2.7 trillion into fossil fuels since 2016. And if you are one of the millions of people who bank with them, they likely used your money to do it.
But the tide is turning as people around the globe become more conscious of their lifestyle and the impact it may be having on the climate. In recent years, we have seen a surge in consumer preference for products that have a lower carbon footprint. So what about the financial products we purchase?
Financial institutions
(Stick with me through the boring bits and I promise it does get interesting!)
The major categories of financial institutions include central banks, retail and commercial banks, internet banks, credit unions, savings, and loans associations, investment banks, investment companies, brokerage firms, insurance companies, and mortgage companies
The most commonly used financial products are:
– Current/Checking Account
– Savings Account
– Credit
– Pension
– Mortgage
– Insurance
To divest means to take money away from. Think about how much of your money you entrust to these businesses every year and you start to see how powerful a change you can make.
Let’s start with bank accounts…
In the UK, the five large banks—Lloyds Banking Group, RBS, Barclays, HSBC and Santander—have an overwhelming 85% share of the personal current account market.
But did you know that your money doesn’t actually just sit in your bank account?
Banks make their money in several ways. And one of those ways is by investing customer’s money. If you use a large, multi-national bank, there is a big chance that your bank is investing in fossil fuels. (They could also be investing in weapons and tobacco – yikes!)
Switching your bank is one of the easiest ways to start divesting your hard-earned cash away from fossil fuels and into businesses that align with your values.
Your Ethical Money rates banks on eight factors including their environmental impact, human rights and female representation on their boards with a traffic light system, making it easy to see which lenders are most aligned with your values. They also rate mortgage providers, credit cards, pensions, ISAs and insurance making it a great resource to get you started.
After doing some digging, Triodos Bank came out on top as one of the world’s leading sustainable banks. With a tagline like “your money has the power to change the world”, who wouldn’t feel great about making a switch? Triodos only lends money to organisations “making a positive impact, culturally, socially or environmentally’ and has a partnership with environmental charity Friends of the Earth.
Some other contenders were building societies and app-based banks like Monzo and Starling. Building societies and credit unions make their money by investing in community products rather than lending to big corporations and generally come out over banks.
In addition to switching, I wrote to my old bank and made it clear why I was leaving. It is important that fossil fuel investors know why people are moving away from them and seeking out more ethical businesses to bank with.
Ok, so that was pretty easy and felt very virtuous. What’s next?
Investing
To grow your money over time, you will be purchasing several different investment products in your lifetime. As we have already established that most traditional banks are still heavily involved in fossil fuels, how do you save for your future without simultaneously sealing its fate on a burning planet?
ESG investing
ESG investing is a growing category of investment choices that blend environmental, social, and governance factors into traditional investment evaluations. You may hear the term used interchangeably with “socially responsible investing” (SRI) and “sustainable investing“.
Green and ethical investing is steadily increasing in popularity and according to online investment service Wealthify, there is over £19billion invested in ethical funds in the UK and close to £80 billion globally.
In the UK, a workplace pension or personal pension is commonly our first foray into the investing world. We often leave it in the hands of our employer or financial advisor to choose which product our money is being invested in. But with all that we have learned, we are not doing that anymore, are we?
Pension or retirement funds
A pension is a type of retirement plan that provides a monthly income in retirement. A pension plan is a type of retirement plan where an employee adds money into a fund that includes contributions by the employer.
They don’t teach you about pensions in school so I had to get a better understanding of how they work before making any big moves here – I do plan to retire one day and I’d like to enjoy my golden years sipping wine, enjoying the countryside somewhere and that kind of tranquillity doesn’t come for free!
In July 2020, Mark Carney, former governor of the Bank of England and Richard Curtis screenwriter and founder of Comic Relief started a campaign to invest Britain’s £3trillion pension savings into fighting climate change. This presents a very exciting opportunity. I was also heartened to read in a Financial Times article that a fifth of savers opt for currently “green” funds.
According to Make My Money Matter, “pensions are the new front line in the fight against climate change”. I want to note here that using exciting slogans is really important because pensions are not that exciting and divesting them is a pretty lengthy process! On the MMMM website, you can email your pension provider now and urge them to go carbon neutral. There is also a petition on its website calling on pension funds to use our pension power to build a better world.
Now educated, I scheduled a call…
Excited by the prospect of being part of a movement where £3trillion could be invested in a green recovery, I scheduled a call with my pension provider to find out what funds my pension was being invested in and this was when the frustrations started.
Like most employees in the UK, my employer matches my pension contributions up to a certain percentage as part of my compensation package and I am a big advocate for not leaving that money on the table! The government also contributes as a form of tax relief. All the contributions to your pension fund are then invested by the pension company to grow your money over time.
My provider was only able to give me information about the Top 10 Holdings of each fund, meaning that it was not possible for me to get a full picture of where my pension was being invested. I discussed my concerns with them but they were unable to give me the information I requested. They suggested that I would be able to move my pension to another fund with the same provider and directed me to their selection of ethical funds and this was where the second big shock happened.
Notorious fast fashion giants BooHoo Group was in all but one of their “ethical” funds (what the actual?!). Confused, I did some research and started asking experts how it’s possible for a brand like that to be considered an ethical choice.
In its 2019 report, investment management company Newton talk about Responsible Investing under three headings:
Screening – divesting from industries with a negative impact such as weapons, fossil fuels and tobacco.
Integrating Environmental Social Governance (ESG) –specific positive values set for your investments.
Sustainable – positive social and environmental impact and measurable engagement.
BooHoo was considered ethical using Screening as a method. Fashion is not considered to be a negative industry in the way that tobacco or weapons are and therefore, it was automatically considered not negative and included in ethical finds.
And that’s why divesting can be tricky…
What makes this especially complex is that there is no standard definition of “ethical” that is generally agreed upon. It is not a legal definition and there are infinite versions of what people and institutions consider to be ethical. As well as BooHoo Group, the “ethical funds” featured large multinational banks who invest heavily in fossil fuels and plastic companies.
At this point, I also discovered that divesting from fossil fuels does not mean your money is automatically ethical – it could still be tied up in industries where slavery is used in the supply chain like chocolate or coffee. Luckily, I am not the only one who has agonised over this! Adam Robbins at Triodos Investment Bank stated that “These shades of green indicate that it is clearly time to adopt industry-wide definition on what impact investing exactly is – and isn’t,”.
It became apparent that my current provider does not have options that align with my values, or that protect the climate but if I were to withdraw my pension and switch to another provider, I would lose out on my employer contribution.
So, what’s a girl to do?
Firstly, I asked my employer to review the provider and consider changing to a climate-friendly one, which they immediately agreed to do in 2021.
You have power as a consumer, to change the way that the brands you interact with do business, but you also have power as an employee to change the way your employer does business. Happy staff are more productive so it is in their interest to listen to what you have to say.
While it’s not something that will happen overnight, if enough requests come in, you may be able to influence them to make the switch and not only divest your lifetime savings but also all of your colleagues as well! Why not chat to some of your co-workers and ask them whether they would be interested in approaching your HR department as a group?
Another option in the meantime: if you are maximising your employer contributions (i.e they offer a match of 6% and you are contributing 6%) but you are thinking about increasing the amount you put away, you can open a second fund. It is perfectly legal, and some financial advisors even suggest having multiple pensions so that you are spreading your risk.
To help you choose the right pension for you and your values, there is a growing number of resources out there. In addition to Your Ethical Money, you can also review your options with Fossil Free Pensions, Fossil Free Funds and Invest Your Values.
Let’s talk about ISAs
The main difference between an ISA and any other savings account is that it offers tax-free interest payments, so you could get more for your money. There is a limit to how much money you can put into an ISA in each tax year, which is called the ‘ISA allowance’. While most large banks offer ISAs, there are other options and investment platform Ethex.org allows you to search and compare them.
Mortgages
Mortgages are a legal agreement by which a bank, building society, etc. lends money at interest in exchange for taking title of the debtor’s property, with the condition that the conveyance of title becomes void upon the payment of the debt.
For most people, the single biggest investment they will make in their lives is buying a home. And all but very few of us will need to borrow money from a financial institution to do so. This means that mortgages are usually the single biggest financial product that we buy, making them especially profitable and generating billions every year for financial institutions to invest.
So if you are in the market for a home, how easy is it to avoid taking out a mortgage with a bank that is investing in fossil fuels? As a single woman living in London and working in the nonprofit sector, this is not a problem I currently have or am likely to have in the near future but I did do some research for you anyway (just because I’m nice like that, you’re welcome).
Using Your Ethical Money, lenders that score well from an ethical standpoint include Leeds Building Society, Newcastle Building Society, Coventry Building Society, Nationwide Building Society, Skipton Building Society. Serving to highlight once again that building societies are the way to go in the UK.
But the truth is, how much you are able to borrow and who you can borrow from is largely determined by your income and where you live so while there are more ethical mortgage lenders out there, they may not be suitable for you and your budget. This highlights the limits we have as individuals and should serve as motivation to continue to hold politicians and corporations accountable for making changes in an unequal and irresponsible capitalist system.
Phew! Ok, I’ll get down off my soapbox now….
There is a glimmer of hope – deciding to choose an ethical mortgage provider is not just for first-time buyers. It is also possible to switch providers in the middle of a mortgage period. So even if your choices are limited when you are taking out your mortgage, or if you already have one, as your circumstances change you may be able to divest.
Insurance
In a nutshell, insurance is an arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium. Types of insurance commonly taken out include home, vehicle, health, and travel.
I will admit that I have several insurance policies and that I have only just begun to investigate the impact that they have on the environment. I did warn you – this has been a journey and not a quick or easy one!
One insurer that comes out on top is Naturesave. Naturesave offers home insurance, business and charity insurance. They place 10% of premiums into a fund (The Naturesave Trust) which finances projects that benefit the environment and plant a Tree for every new policy issued.
And now for the (green) million-pound question – does moving from traditional investment products mean sacrificing returns?
The good news is, no. In fact, we are seeing increasing evidence that ethical funds are consistently outperforming traditional products. And during the coronavirus pandemic, green funds are proving more resilient meaning you can rest easy knowing that your investments are not just good for the planet but also for your pocket.
Morningstar, a research agency, has been analysing the returns of over 700 sustainable funds and how they compare to their traditional counterparts. Its report observed that “average returns and success rates for sustainable funds suggest that there is no performance trade-off associated with sustainable funds. In fact, a majority of sustainable funds have outperformed their traditional peers over multiple time horizons,”.
That vineyard in the south of France is looking closer, and greener, than ever!
