It's getting hot in here, so take off all your coal
Updated: Aug 22, 2020
WTF is this blog about!?
This one is for you oat milk drinking, Seitan eating, 'I don't do long haul flights anymore' preaching hippies.
Newsflash 🚨 all that hard work you're doing to make the world a better place is being completely diminished by investing in non-environmentally friendly companies!
There's no denying it, global warming is a thing. That's why so many millennials are turning to more sustainable lifestyles, which is great and all #savethepiggies, but did you know that switching your investments to a more sustainable fund can be 27 times more effective in reducing your carbon footprint than giving up flying AND becoming vegan!?**
This is because lots of your hard earned cash that is being invested in the stock market (whether that be through your pension, Stocks & Shares ISAs or general trading account) will be going towards companies that are bad for the environment. This means that die hard vegans could be unknowingly investing in Maccy D's, doctors might be investing British American Tobacco and Extinction Rebellion activists in Shell 😲
Long story short, no matter how long you plan on living off the single radish you've managed to grow on your balcony during lockdown, there's more effective things you could be doing to be green.
How can I make the world a better place!?
Climate change is a hot topic at the moment (pardon the pun), so there's loads of environmentally friendly investment options out there for you to get your hands on. These 'socially responsible' investment options typically aim to focus on the following areas, known as ' ESG' factors:
A company's impact on the environment i.e. do they produce high carbon emissions or use recyclable packaging?
A company's labour standards, compliance with human rights laws and health & safety in the workplace etc. i.e. do they use child labour or have a good impact on the local community?
How a company is run i.e. are they corrupt or do they have good accounting practices?
There's a few ways of accessing these ESG factors through your investments, some of which are more impactful than others. For example, you can invest in:
Ethical funds: which basically exclude controversial industries like tobacco, gambling and weapons.
Sustainable/responsible funds: which reduce their exposure to 'bad' companies like Shell (for high pollution) and VW (for that big scandal) and increase their exposure to 'good' companies like Tesla (for making environmentally-friendly cars) and Apple (for its pledge to become carbon neutral across all aspects of its business, including manufacturing and supply chains, by 2030!).
Impact funds: these are for people that really want to push the boat out. Rather than just looking to minimise the negative impact they have on the world, impact funds actively look to invest in companies that are making the world a better place, by investing in things like wind farms and affordable housing.
The less 'intense' you wanna be, the cheaper and easier it is to access. For newbie investors, sustainable funds are probably your best option.
How can I access sustainable funds?
Most platforms, including my personal fave Nutmeg*, offer sustainable Stocks & Shares ISA portfolios. The catch is that they might be a little more expensive than the normal ones, but evidence suggests that, over the long-term, these portfolios are likely to perform better than non-sustainable ones because they are typically investing in more resilient, well-run companies.
If you design your own portfolio, why not try switching your equity fund to one that focuses on the ESG factors? These are available through all the main platforms like Vanguard and Hargreaves Lansdown.
Another great thing to do is look into your pension; the company I work for has recently switched the default equity fund to a sustainable one. Speak to HR to see whether this is something they would consider doing - or, if you have a private pension, ask your provider what sustainable options they offer!
Whilst I'm not suggesting your eco-friendly lifestyles are a wasted effort (I'm definitely going to continue being veggie and recycling to the max!), there are other, more effective, things that you can be doing to help make the world a better place - so make sure that, where possible, your investments are aligned with your beliefs and values.
For newbie investors, ready-made ESG-friendly Stocks & Shares ISAs, like Nutmeg's*, are a good place to start when it comes to investing sustainably! And I urge you all to ask your pension provider what they can offer when it comes to ESG.
If you found this blog useful, please share with your family, mates and Tinder dates! And go give me a follow on Insta for more banging content.
*By using this link to open a Nutmeg ISA you won't have to pay any management fees for 6-months (I'll also get a small reward, so it's a win-win!) 💃
**Make my Money Matter is creating a movement calling for the trillions of pounds invested in our UK pensions to be used to build a better world.
Now for the serious part: my blogs are for educational purposes only; they do not constitute financial advice. Please consult with an independent financial advisor for advice on your specific circumstances.