In recent years, sustainability has dominated headlines and the public’s consciousness. Whether it’s choosing to reduce your plastic use, switching to renewable energy sources, or supporting ethical brands, people across the country are becoming increasingly aware of the impact their choices have on the world around them.
This sustainability also extends to your finances, and you may not have considered the good your wealth can have.
Good Money Week, which runs from 30 September to 6 October, could offer the perfect opportunity to explore how your financial decisions can align with your values.
This annual awareness campaign aims to promote sustainable, responsible, and ethical finance by bringing together experts, businesses, and individuals through a series of discussions and debates.
With this in mind, continue reading to discover three ways you could align your finances with your code of ethics.
1. Invest in ESG companies or funds
Perhaps one of the more effective ways to align your wealth with your values is by investing in Environmental, Social, and Governance (ESG) companies or funds.
ESG investing typically considers how companies perform on a range of non-financial factors. These include:
- Environmental – How a company affects the world around us, such as whether they manage carbon emissions and how they use natural resources.
- Social – Issues such as staff working conditions, wage levels, or ethnic diversity in the workforce.
- Governance – Companies’ behaviour at the corporate level, including diversity in the boardroom, and company policies such as transparent accounting methods or democratic voting for shareholders.
Investing in ESG companies could give you the chance to support businesses that are committed to operating sustainably and ethically. You can typically do so directly, or by choosing funds with an ESG focus.
While this sounds positive, it’s vital to be aware of “greenwashing”. This is when companies make exaggerated claims about their sustainability efforts to appeal to consumers when, in reality, they might engage in practices that are environmentally or socially damaging.
To avoid being misled, it’s worth doing your own research rather than solely relying on marketing material from these companies. Moreover, since the conception of “good” varies from person to person, your own research can also allow you to know that what you’re choosing aligns with your own ethics.
You should also keep an eye out for buzzwords, such as “eco” or “sustainable”, as these could imply that a company is relying on overly “green” language instead of its actions.
To help combat greenwashing, the Financial Conduct Authority (FCA) has recently introduced new “sustainability labels”. These will provide a clearer indication of how ethical a fund or company really is, potentially making it more straightforward for you to choose investments that align with your values.
2. Switch to a “green pension”
Many people across the UK might not realise that their pension is one of the most powerful tools they have to drive positive environmental change. As such, you might want to consider switching to a “green pension”.
Amazingly, research reported by Make My Money Matter shows that switching to a green pension is 21 times more effective at cutting your carbon footprint than giving up flying, adopting a vegetarian diet, and switching energy providers combined.
A green pension typically invests in assets that meet ESG criteria, such as companies that avoid using fossil fuels or invest in renewable energy projects. By remaining invested over the long term, your pension could help support companies working towards a more sustainable future.
If you have a workplace or other personal pension, it might be wise to check whether your provider offers an “ethical fund” option, which filters out companies that don’t meet ESG criteria.
Additionally, if you manage your own retirement fund through a self-invested personal pension (SIPP), you have even more control over your investments and can choose specific companies or funds that align with your personal values.
Just remember that it’s always wise to consult with a financial planner before you make any changes to your pension.
3. Consider a “Green Savings Bond”
A relatively new way to align your wealth with your ethics, Green Savings Bonds could be another excellent option.
Launched in 2021, the bond is a Treasury-backed fixed savings account available from National Savings & Investments (NS&I).
The value of the Green Savings Bond lies in how any accumulated money is used. Indeed, any funds raised are used to support various government environmental infrastructure projects, such as:
- Building offshore wind farms
- Accelerating the transition to electric vehicles
- Improving public transport.
Green Savings Bonds operate much like a standard fixed-rate savings account, meaning your money is locked away for a period – in this case, three years. After this, you’ll receive your savings back as a lump sum, along with any interest you’ve accrued.
In January 2024, NS&I reduced the rate on its Green Savings Bonds to 2.95% a year, fixed for its three-year term. Data from the Times Money Mentor shows that if you had invested £10,000 in a Green Savings Bond, you would earn £295 a year, totalling just under £10,912 over the three-year period thanks to compounding interest.
It is worth noting that you might find that your wealth underperforms in a Green Savings Bond compared to other saving and investment vehicles.
Moneyfacts reveals that the best three-year fixed-rate bond offers 4.51% a year as of 12 September 2024. Meanwhile, investing could be even more powerful, with data from IG showing that the FTSE 100 offered a total return of 7.8% on an annualised total basis between 1984 and 2019.
Despite this, the positive impact of supporting green projects could make them an attractive choice if you wish to prioritise sustainability.
Additionally, diversifying your assets with a Green Savings Bond could complement other savings or investments in your portfolio, potentially helping you to spread risk while ensuring that your financial decisions are as sustainable as they are strategic.
Get in touch
If you’re searching for ways to align your wealth with your ethics, we can help.
If you’re looking for a financial planner in Bristol, please get in touch either by email at helpme@aspirellp.co.uk or by calling 0117 9303510.
Please note
This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Workplace pensions are regulated by The Pension Regulator.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
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