Investing to help the planet

Ensuring your investments make a positive impact is easier than you think

March 24, 2021
Making a long-term green investment can help fund projects that develop environmentally-friendly technology © CHRIS WILLSON/ALAMY STOCK PHOTO
Making a long-term green investment can help fund projects that develop environmentally-friendly technology © CHRIS WILLSON/ALAMY STOCK PHOTO

Whether it was David Attenborough’s powerful look back over how the world has changed during his career in A Life on Our Planet, Greta Thunberg, the Paris Climate Agreement or the devastating bush fires in Australia over the past few years, climate change has become an issue most of us take seriously.

Many of us are trying harder than ever before to lead a sustainable life, whether it’s by reducing our waste, buying an electric car or simply making a determined effort to understand our local council’s recycling rules.

One way you can make a significant impact on the health of the planet is through green investing. Choosing to sink your money into environmentally friendly companies can turbocharge your own ethical efforts. The sustainable fund manager Nordea has found that moving your pension into green investments could save 2,223 tonnes of carbon over your working life. In contrast, cutting down to one return flight a year saves an average of 19 tonnes.

Making a long-term green investment can help fund projects that develop environmentally friendly technology or help with scientific research into ways to help the planet. It also encourages all companies to move towards more sustainable practices as more and more people sell investments in firms they don’t feel are meeting their environmental obligations.

For a long time, people were put off green investing, as it was assumed that you couldn’t make as much money if you excluded the big global firms. This is not the case. Research by AJ Bell found that the average 10-year total return from UK non-ethical funds was 80 per cent in September 2020. The average UK ethical fund returned 103 per cent over the same period. There is money to be made from ethical investing.

Investors are enthusiastically greeting the rise in green funds, with one in three pounds that were placed in funds last year going into ESG investments, according to Morningstar.

There is no strict definition of what you have to do to be classed as a green investment. Most funds will avoid oil, tobacco, arms dealers and coal mining, but they may invest in other things you disagree with, such as firms involved in animal testing.

When picking a fund take a look at its objective. This will give you a description of what the fund is aiming to do and will often outline its ethical principles. Then study the fund’s top 10 holdings to see if these companies match your own belief of what green investing should be. Unfortunately, you may be disappointed.

For example, one of the top-performing ESG funds—Royal London Sustainable Leaders Trust—describes its aim as investing in companies “that are deemed to make a positive contribution to society.” Sounds great, if a bit vague. But the fund’s biggest holding is energy firm SSE, which means your money is still going into fossil fuels.

So, how can you find truly green investments? There are several websites that can help you. The Ethical Consumer website tells you what to look for when comparing investments and, if you subscribe, you can see the firms and investments it recommends. Alternatively, fund supermarket Interactive Investor has put together a rated list of ESG investments with its ACE 40.

Another option is to invest in individual stocks rather than collective investments. This gives you complete control to build a portfolio that is 100 per cent aligned with your own ethics. There is the added bonus too that, if you have the time, as a shareholder you are entitled to attend the Annual General Meeting and can vote to influence the company’s sustainability policies.

Finally, don’t forget about your day-to-day banking if you want to help the planet. When you deposit cash in a savings account, the bank invests that money or lends it out to companies. For several of the high street banks this can mean planet-damaging projects. The Rainforest Action Network found that the world’s biggest banks, including Barclays and HSBC, invested £1.5 trillion into fossil fuels between 2016 and 2019.

There are several ethical banks and building societies now offering savings and current accounts as well as mortgages. These include Triodos, Ecology Building Society and The Co-operative Bank.

Opting for green investments isn’t hugely difficult and can offer impressive returns, but most importantly it could be the most powerful way you can help the planet.

This article is featured in Prospect’s new “The Road to Recovery” report, published in partnership with Lloyds Banking Group, the Government of Jersey and Jersey Finance. Read the full report PDF here.