BLOG: Why you’re already greener than you think
It can be hard to live lightly on the earth. Sometimes it feels like all we can do is make small positive decisions like reducing waste or buying organic, and hope that the impact of them adds up over time.
But most people don’t realise that they’re already making a big impact in shaping the kind of world we want to live in – through where you keep your pension, investments, savings and bank account.
Power of the crowd
When you pay a portion of your salary into a pension or savings account, that money doesn’t just stay with the bank or pension provider.
It’s pooled together with other peoples’ money and invested in companies, countries or projects, both in the UK and around the world. Those investments could be shares (small stakes) in businesses or loans to governments and companies that help them finance new projects and carry on their day-to-day activities.
For banks, investing savers’ deposits is part of the business model that helps them provide interest on savings. For pension providers their raison d’etre is to help individuals grow their money so they have enough to retire.
The key point is: without you doing anything, the money you earn, save and invest is having an influence somewhere in the world.
You may only be putting away a small amount of money each month, but combine that with the thousands of other people who have the same pension provider, bank, or chosen the same investments, and the impact of your decision where to invest is amplified.
What is socially responsible investing?
Growing recognition of this power that we have collectively has created more interest in socially responsible investing (SRI) – an umbrella term that’s used to describe investing with a focus on greener, sustainable, ethical or socially conscious outcomes.
SRI covers a range of concerns including climate change, carbon emissions, environmental degradation, pollution and waste, human rights, corporate social responsibility, animal welfare and so on.
Investors scrutinise different aspects of a potential investment – say, a company, to see how its practices in the boardroom, treatment of staff and management of its supply chain contribute to positive or negative outcomes.
There is no perfect organisation behaving virtuously in all aspects of its business. Moreover, nobody agrees on what it means to be truly ethical; as individuals we all have different values and even among people with similar values their priorities differ.
So, socially responsible investing isn’t about only choosing to invest in the greenest and most ethical companies (although some people prefer to invest this way).
For most people, being conscious about their investments means making a decision to channel their money towards companies or projects that are trying to do better.
How we judge companies on their socially responsible credentials is a complicated question. But investors have been given a helping hand since new regulation forces big pension schemes to reveal the carbon impact of their investments.
At Nutmeg, we have already been publishing the carbon emissions per $1m of revenue for the companies in all of our portfolios and now pension schemes will have to follow suit.
Looking at carbon emissions isn’t necessarily the best way of gauging the impact that a company has on the environment. Investors also have to rely on the figures that each company gives them, which may not be completely accurate or gathered using the same methodology.
But it’s a step in the right direction for big pension schemes to be collating this data and it allows people to gauge whether their pension is relatively environmentally friendly compared to others.
Action plan for greening your money
Check your workplace pension, its carbon impact and if the provider has a socially responsible option. Consider whether you could move your investments into a greener option – but remember, it’s worth considering financial advice before making any big decisions to move your pension.
Nutmeg has a range of SRI portfolios with a range of risk levels. It’s a myth that investing ethically means missing out on returns.
Check your bank; some banks are more open than others about what their customers’ money is used to finance. Check with the provider of your current and savings accounts to see if their values align with yours.
As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. A pension may not be right for everyone and tax rules may change in the future. Please note that during any transfer, your investments will be out of the market. If you are unsure if a pension is right for you, please seek financial advice.
Annabelle Williams is personal finance specialist at Nutmeg