Good Money. Bad Money. My Money?

by Surabhi Narendranath and Jake Levy

*Note that the views expressed here are the authors’ own and do not constitute financial advice.

There’s a good chance you’re aware by now that one of the most powerful decisions you can make as an individual to fight climate change is to switch your pension plan to an ethical option. There’s also a good chance you’ve heard about the damning report from the Rainforest Action Network that banks have financed the fossil fuel industry to the tune of $1.9 trillion between 2016 and 2018 — i.e. after the Paris agreement was signed. But let’s face it, for most of us the thought of looking into pension plans and switching bank accounts has the immediate effect of making our shoulders slump and our eyes glaze over. It is exactly to fight that paralysis and energise people into taking the crucial first step that we chose ethical finance as the focus of our second ActionAble pop-up event.

We had an inspiring line-up of speakers: Ed Siegel from Charity Bank, Naomi Alexander Naidoo from Finance Innovation Lab, Mary Stevens from Friends of the Earth and Michael Kind from ShareAction. In the panel discussion that followed, we learnt the startling fact that the amount of money invested through pensions makes up half of all the money in the world! When those pension providers are investing in oil and gas behemoths in our names and directly contributing to climate breakdown, it is time to stop and ask: what can I do about it?

If you weren’t one of the lucky few to attend our event, here are a few simple actionable points that came up in the discussions:

1. Switch to an ethical pension: Auto-enrolment means vast numbers of us are building up pension pots which are being invested into a default fund chosen by our employers. It is very likely this fund isn’t ethical and is investing in fossil fuel companies. You can easily find out the name of your pension provider and auto-enrolment fund through your employer. Switching to a more ethical fund by the same provider is the most convenient option for your employer, especially if they’re matching your contributions. It should be possible to do this online, but it should also be possible for your company’s HR to ask the pension provider to send a representative to your office and speak to staff about their options. However, if the provider simply doesn’t offer an option that is truly ethical, it might be time to ask your employer to consider switching the provider. If this seems daunting, remember there is strength in numbers. Start casual conversations with other people in your office to gauge the level of interest. You’d be surprised at how many people are thinking along the same lines and are willing to do something about it. The next step would be to broach the topic with HR and senior management and explain why it’s so important. Remember you’re not a lone rebel here, mainstream finance is (finally) waking up to the fact that investing responsibly in the best interest of people and planet is simply good common sense. After all, the CEO of the world’s largest asset manager has recognised that climate risk is investment risk and called for a fundamental reshaping of finance. And nothing will make asset managers walk the talk faster than millions of individuals like you moving their personal pension pots and rewarding the providers who are ahead of the game. To find out more, including ShareAction’s rankings of the most commonly used auto-enrolment pension providers in the UK, head to their website.

2. Petition the government: In some instances, your pension provider may not offer an ethical option and it maybe hard to switch pension providers, so we need to do more to tackle the system head on. Wouldn’t it be great if all pension providers were obliged to invest our money in a way that is consistent with our Paris climate goals? Sounds obvious right? Well, ShareAction is lobbying for just such a change in the law and you can support them by signing their petition here.

3. Switch to a more ethical bank: There is growing interest in ethical banks like Charity Bank and Triodos which use our deposits to make loans to organisations creating positive social and environmental impact in the world for e.g. clean energy companies or social housing and care providers. Several building societies like Ecology and Nationwide also rank well on ethical scores. And if you’re worried about putting your money in a lesser known organisation, remember that all UK regulated current or savings accounts in banks, building societies and credit unions are covered up to an amount of £85,000 per financial institution by the Financial Services Compensation Scheme.

4. Invest ethically: If you’re lucky enough to have savings to invest, that just means you have more power to create positive change! There are ethical funds out there which negatively screen for certain sectors like oil and gas, and score well on ESG (Environmental, Social and Governance) criteria and plenty of comparison websites and blogs to help you find the one most suitable for you like good-with-money.com, ethex.org.uk and yourethicalmoney.org. Cross-reference a couple of sources to filter down your choices. If you have a significant amount to save, it might be worth going to a financial adviser but before that, do a little research of your own, and make it clear at the very first meeting that you’re looking for investments which align with your values. There are also online apps like Nutmeg that are democratising investments and allowing you to invest in small amounts and choose your risk profile as well as the desired ESG rating for your portfolio. Final piece of advice, when it comes to investment funds, don’t go by the name alone. A fund might have “ethical” or “sustainable” in its name but dig into the list of holdings and you might find FTSE 100 giants like BP, Royal Dutch Shell and British American Tobacco lurking in the depths. There are campaigns underway to bring about more transparency in the industry but until then, remember forewarned is forearmed, so ask to see the list of holdings to ensure the fund manager’s definition of “ethical” matches with yours. We hope attending the event or reading this blog has energised you to take the first step towards making your money do more good in the world. And at ActionAble we firmly believe in peer support and that holding each other accountable really helps fight off the inertia. So form a little accountability group of your own, hold a “pizzas-and-pensions” party, and check in with each other regularly to talk through any obstacles or challenges along the way.