Environment

How To Use Your Money For Good

By Jenny Campbell
17.04.19

Following Mark Carney's climate change warning to the global finance industry this week, Jenny Campbell discusses where to start with responsible investment and how to use your money for good.

 

Here at Eco-Age, we’re all about small daily changes that contribute to a more sustainable lifestyle. But how do you use one of the most powerful tools in your democratic toolbox – your money – for good? Responsible, sustainable or ethical investments are all charaterised by an approach to investing that aims to incorporate environmental, social and governance (ESG) factors into investment decisions. But how do you actually get started, and what are the small steps you can take to make sure your hard earned cash is being used in a way you’re comfortable with? 

Governor of the Bank of England Mark Carney this week issued a stark warning to the global finance industry about the risks of ignoring the human, environmental and financial costs of climate change. Joined by Governor of the Bank of France François Villeroy de Galhau, and Dutch banker and chairman Frank Elderson, Carney made it clear that the financial sector is not just a passive by-stander in these global issues but is actually a crucial partner in the journey to a low-carbon economy.

The warning follows the publication of a new report from the Network for Greening the Financial System (NGFS) - a coalition of 34 central banks and institutions. It has issued the financial industry a four-step programme of recommendations key to integrating sustainability into their operations. Steps include climate data monitoring, assessments of climate related risks and knowledge sharing within the industry. 

Encouragingly, a proportion of the financial world has already come around to the idea of responsible investment. Across the world more than 800 institutions, with total investments valued at $6tn, have committed to divest from fossil fuels. The Global Sustainable Investment Alliance (GSIA) reported that since 2016 there has been a 34% increase in sustainable investment assets in Europe, US, Japan, Canada, and Australia and New Zealand. It seems that an approach to money management that prioritises a positive impact on the environment is at the top of the global market agenda.

The principle of responsible investing is not a new one. Historically it has been an issue of avoidance rather than positive action, as investors refused to invest in ‘sin industries’ such as tobacco or firearms. The concept has roots that go all the way back to the 1700s, when groups such as the Quakers and Methodist churches divested from the slave trade, smuggling and war production. In 1999, the UN created the Global Compact, a voluntary pact for businesses to adopt sustainable and socially responsible policies, which was then followed by the launch of the UNPRI (Principles for Responsible Investment) in 2006. 

Although it’s an encouraging step to see leaders of the financial world begin to take climate change seriously, it can seem overwhelming to consider action on a smaller scale. How do you make sure that your money is not funding fossil fuels, or industries with a negative social or environmental impact? Luckily there are steps you can take as an individual to create positive change by using your bank account for good. 

SWITCH TO ETHICAL BANKING

Possibly the easiest and most direct step is to switch your current account from a high-street bank to an ‘Ethical Bank’. We might not often think about how our money is being used by our high street bank, especially when convience and customer service are often priorities when it comes to handling money. But there are more and more options to choose from as responsible banking becomes more popular and mainstream, and you can use the Ethical Consumer rating system as your filter. It has just issued its latest guide to ethical finance and calls for the big banks to provide full transparency about who they are lending to. Top picks include the Co-operative, Ecology building society and millennial favourite Triodos. With an ethos focused on investing in companies that have a positive cultural and environmental impact, the Dutch bank has a full transparency policy and is one of the only UK banks to publish extensive details of all the organisations it lends to.

CHARITABLE SAVINGS

If social impact is that the top of your priorities, then consider opening a savings account with an organization such as Charity Bank. A savings and loans bank, it will use your money to lend solely to charities and social enterprises. Transparency is again a key factor here – they launched the inspiring #FollowTheMoney, which allows savers an insight into the different initiatives their money helps. Crowdfunding is also a great option to see your money go directly to something positive. Chuffed.org is a platform which promotes only positive social and environmental crowdfunding schemes, allowing you to pick and choose between causes that you believe in. 

RESPONSIBLE INVESTING

If you’re looking to go further with your money, getting started in further investments can be a bit of a minefield. ESG funds have never been so abundant, but it can be quite hard to know where to start. Investment management company Newton have helpfully split up Responsible Investing into three different levels in their 2019 report. 

1.    Screening – This is the principle of divesting from industries with a negative impact such as weapons, alcohol and tobacco.
2.    Integrating ESG – No specific positive values set for your investments
3.    Sustainable – emphasis on positive social and environmental impact and measurable engagement. 

Online platforms such as ethex.org.uk can help you as an individual break into positive investing and find what you’re looking for; whether that’s equity investments, bonds or ISAs. It provides a comparison tool between financial products, and you can also buy through the platform without having to use a third party site. It’s important to remember that the key fundamental rules of investing still apply – keep a diversified portfolio and measure risk vs return. If it feels overwhelming, ask your bank manager or finanacial adviser about responsible investing – it’s never been a better time to get involved. 

 

Want to take a stand for the planet? Read our guide on how to be a climate activist.

For more inspiration, read 12 Ways to Love Our Planet

How To Use Your Money For Good