Monday, May 29, 2023
    HomeLifestyleExpert advice on how to invest your money ethically

    Expert advice on how to invest your money ethically

    Lisa Johnson, 49, has always been climate conscious.

    She is a member of her local sustainability network in Cheshire, doesn’t eat meat or dairy and drives an electric car.

    Lisa has been self-employed for 13 years, running her own organic beauty brand, LJ Natural and does her business and personal banking through ethical-focused bank Triodos.

    She already pays a small amount into a personal pension set-up through her financial adviser but is starting to think about making sure it reflects her “green values.”

    Lisa says: “My business is very sustainable and eco-minded. However, I’m clueless when it comes to money and investments.

    “It has always been on my to-do list to make sure I am invested in ethical things through my pension and have asked my adviser about it.

    “I would rather know it is somewhere that doesn’t keep me awake at night.”

    She says retirement feels a long way off so she is unconcerned about the financial performance of her pot but says it feels more important that her money is somewhere ethical.

    Lisa adds: “I don’t like to think of it being used in any fossil fuel-related businesses or by companies that ‘greenwash’ or don’t treat people fairly.”

    We asked three financial experts for their tips.

    Alena Zavarin, chartered financial planner, Anderson Financial Management:

    When it comes to green finance, pensions are often forgotten but they contain a lot more potential for change than a bank account because the capital in each pot is used to support underlying companies via investments.

    Sustainability comes in many shades of green, so it makes sense for Lisa to work out her criteria before making any changes.

    Lisa’s existing provider may offer sustainable portfolios or funds, so take time to understand what their offer is and how that aligns with your requirements

    Sustainable finance has evolved, and she won’t be required to pay a premium for ethical investment nor will she have to sacrifice performance to follow her beliefs – research links sound sustainability standards with better operational performance and cost of capital, making sustainable investments just as financially viable as their conventional counterparts.

    Greener investments are often associated with more concentrated portfolios because “bad” companies are filtered out. Lisa should make sure her pension is still diversified and invested in line with her risk level, especially as she gets closer to retirement age.

    She also isn’t tied to an employer-sponsored scheme so can always shop around or use an adviser specialising in sustainable investments.

    Dale Scorer, senior financial planner, EQ Investors:

    Lisa can check her pension investments by logging on to her provider’s online portal or contact her pension provider to find out what funds she is currently invested in.

    She then needs to do some research on the fund factsheet, which will say if there are any ethical considerations or exclusions.

    If the funds do not align with your values, you need to do some research on your pension investment choices.

    Look for funds that have words such as “sustainable”, “ethical”, “green”, “positive impact”, “ESG” (Environmental, Social and Governance), “socially responsible”, “environmental”, “climate action” and make a shortlist of these funds and consider their objectives as well as the risk grading.

    It is also important to monitor your pension investments regularly to ensure they continue to align with your values and remain ethical.

    Tanya Pein, investment adviser at In2 Planning:

    Unifying your pension planning with your values is not only satisfying at the personal level, but also a wise financial decision: investment funds that recognise these profound macroeconomic shifts are well placed for strong investment returns over the years to come.

    As rising consumption, population growth and finite resources collide, many new opportunities are arising globally for investment in addressing the economic impacts.

    There are plenty of investment options that prioritise sustainability, while offering strong financial returns. Lisa can choose from funds across every sector of the economy, and every region of the world.

    But greenwashing does go on. There are no guarantees, and equally no legally binding definitions of “green”, “sustainable” and “ethical” as yet, although the Financial Conduct Authority is slowly moving in that direction. For now, choosing a long-standing investment fund can be a good way to protect your hard-earned savings from greenwashing.

    Older ethical investment funds operate on an exclusion basis, so you can be reassured that you are not profiting from the arms industry etc.

    In recent years, a positive investment approach has emerged alongside exclusions, whereby funds focus on sectors that positively contribute to the wellbeing of people and planet. Clean energy is a popular choice, but look at the water sector too. This sector is key to human survival, central to a world of continued population growth and resilient to pandemic shocks.

    Right now, 198 countries are reporting on their legal obligations under the 2015 Paris Agreement to slow down climate change. Those legal obligations prompt many investment opportunities, and it is a wise investor that now reviews their portfolio and places sustainability at its centre.



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