Written by: Raechel Kelly | Commissioned and edited by: Stephanie Hodgson
Disclaimer: None of the following information constitutes financial advice. Every individual and business will have their own unique set of needs, values and risks and the advice of financial professionals should be sought if your needs are complex. This article covers the basics of aligning your cash with your principles but, as always, it remains an individual responsibility to ‘check under the bonnet’ that any product is suitable. Businesses, like prospective retirees looking at pension options, must consider a range of options that best fit their goals.
Pensions and investments are not typically the first place people think of when tackling sustainability. Indeed, many people fall asleep as soon as the word ‘pension’ is mentioned! But did you know that your hard earned cash can actually be one of the biggest levers for change and one of the greatest impact moves you can make in tackling climate change and building a better future.
Make My Money Matter, a campaign group started by Richard Curtis (the film director of Four Weddings and a Funeral, Notting Hill, Love Actually fame) conducted research which found that switching your pension to a more sustainable option is 21 times more powerful than giving up flying, going veggie and switching energy providers combined!
To learn more about Make My Money Matter, click HERE.
So we know we can have a huge impact with our money, not just in how we spend it but in how we bank it, save it and invest it, too. However, it can be really tricky to get started. Most business owners have a lot of things higher up the to-do list than switching banks or pensions, and it can seem like a huge hassle to undertake. As Lisa Stanley from Good With Money says,
"Switching financial products is never the most fun way to spend your time, but if you know you are doing it for even better reasons - like helping to save the planet, it can make this bit of life admin that bit more interesting and rewarding. Your pension is likely to be the most money you ever have to your name, so this is a great place to start. Thinking about moving old pensions to sustainable options either with your current provider or a new one, and check to see whether your current provider offers a sustainable option for you, too.’’ https://good-with-money.com/
In actual fact, switching banks is no longer the headache it used to be thanks to changes that mean your new bank should take care of anything, from direct debits and everything else, within 7 working days. Most UK Banks are now covered by the Current Account Switch Guarantee. The same seven day switch service also applies to business banking and you can choose your switch date to ensure everything runs smoothly. You don’t need to cancel your old account straight away and it will be your new provider who is responsible for the switching process.
But who to move to?
Who are the main players when it comes to doing the right thing and investing for the future? Lisa Stanley comments, "Believe it or not, there are ethical banks out there. The money you have going into a current account every month is also powerful - it's invested in other things. Check out Triodos or Co-op, as well as some newer banks like Starling and also building societies."
For personal accounts our top picks to consider would be:
What is interesting about this list is you’ll see a range of different providers from brand new internet-only banks like Starling through to building societies that are 100 years old, showing that sometimes looking back is a good way of looking forward! Building societies were set up to enable people to own their own homes whilst providing funds to build new ones, too, with everyone becoming a ‘member’ rather than profit going to shareholders. There are also many credit unions still in existence which again seek to provide people with alternatives to high risk loans, many of which are experiencing a renaissance with people looking for alternative local options to ‘big banks’.
There may be all sorts of reasons that you end up choosing one bank over another. Examples include: not wanting to pay a fee for a current account; access to a high street bank where you can bank in person; and keeping existing customer rates you might currently have access to. If so, it can sometimes involve a bit of compromising to find one that works for you. As with everything in sustainability, everyone doing something imperfectly is better than noone doing anything at all!
Business banking can be a bit trickier
Not all banks offer business banking options and some that do charge fees for business accounts which means they might not be suitable for all businesses. Triodos, for example, offers business bank accounts but has high fees. Starling has free business banking but is only online. Building societies do not normally offer business banking at all. Remember that you can also have an impact by talking to your current provider and outlining what it is you don’t like such as investment in fossil fuels. If, for whatever reason, you cannot switch banks, you can use tools like Bank Green to check first and then you can put pressure on your bank where it matters most to you.
Pensions can be trickier still, especially if you have a workplace scheme, are about to retire, or have several different pots. But there are solutions out there. One simple thing that you can do is to write to your pension provider to find out exactly what your money is invested in. Many people think of their pension pot locked in a vault, sitting there safely, not doing very much. In actual fact, banks use your pension money to invest in all sorts of different projects and businesses around the globe to try and grow your money for you–and make some extra for themselves. Your pension pot money could be funding fossil fuels, arms companies, tobacco, polluting or human rights abusing companies. Or it could be investing in clean, green companies, like renewable energy, ethical companies and solutions to global problems.
There can also be a whole host of different words and acronyms to get your head around. Some use ‘ethical’ or ‘sustainable’. Others now focus on ‘ESG’ (Environment, Social and Governance) but it’s important to point out that there are currently no hard and fast rules on what all these different terms mean. For example, a ‘sustainable’ option might still invest in a fossil fuel company if they are making some technology used in wind or solar power. It remains up to the consumer to decide which type of strategy best fits their principles. Good Money Week has a great resources page which answers a lot of frequently asked questions around this. (Find that HERE. )
If you provide workplace pensions, for example through Nest, you can let your employees know that they have a choice of an ‘ethical’ option. It will be up to them to choose it but you can provide them with the information. There is also an enormous issue of the ‘gender pensions gap’ which means women often end up with considerably smaller pension pots than men due to caring responsibilities, gaps in employment and other socio-economic reasons.
To learn more about the gender pensions gap, click HERE.
It can sometimes seem like financial advice and financial education is set up strongly in favour of men and often delivered by men in ways that can be off-putting. On the other hand, research has shown how women can have a profound impact on the direction of investment as they are more likely to favour ethical options.
Make My Money Matter has some great simple tools to make contacting your pension fund easier. Their Take the 21x Challenge creates a template email to your pension provider based on your specific pension fund and even provides you with their contact details.
This is a great first step. Lots of providers are catching on that people care about having sustainable pensions so it might be the case that you find out your fund is already doing some policy work or has set a net zero target already. But even if you cannot recall your pension provider right now, you can still sign the petition (found HERE) which calls on all UK pensions to become #pensionswithintention. Together, we can call on all UK pension funds to put people and planet on par with profit by, for example, committing to net zero emissions by 2050.
A common criticism of sustainable investment is that you must sacrifice returns in order to invest according to your principles. However, multiple studies have show that this is not the case. In fact, these funds often outperform their traditional unethical counterparts.
A Morgan Stanley report ‘Sustainable Reality’ in 2019 looked at over 11,000 funds and found there was no financial trade-off to invest sustainably. The study looked at return and risk performance over the time period between 2004 and 2018–including the 2008 crash–and found that the returns of sustainable funds were in line with comparable traditional funds total returns. Not only that, they also found that sustainable funds may offer lower market risk since they experienced a 20% smaller downside deviation than traditional funds. This was a consistent and statistically significant finding.
By definition, checking the sustainability and longevity of a company means that investment managers are forced to look harder at the companies they hold and delve deeper into how a company is being run, as well as what they are doing and how they look after people and planet.
Many business owners are doing all they can to try and ensure their business is ahead of the curve when it comes to sustainability. Making sure your money is working as hard towards a better world as you are is an inevitable next step. Don’t let your hard earned cash be undoing your everyday hard work in recycling, eating plant based or flying less. Set yourself a target today to get your profits aligned with your principles.
About the author
Raechel Kelly is the Director of GSC’s Accreditation program and runs The Liminality, a consultancy firm focused on joining the dots across environmental and social sustainability and bringing regenerative thinking to organisations of all sizes. She also works on local community climate initiatives, empowering citizens to create change.
About the series
This article is part of a series on Holistic Sustainability which looks at less understood aspects of sustainability including water and energy (written by Stephanie Hodgson), money (written by Raechel Kelly) and diversity and inclusivity (written by Alix Bizet).
References and further reading