Good Money Week starts on 30 September and encourages you to think about the potential impact your financial decisions have on the environment and wider society.
You might already consider the effect of some of your financial decisions. Perhaps you pick up Fairtrade bananas or chocolate when you’re shopping because you want to support the farmers. It’s not just your purchases where a change in habits could align your decisions with your values – how you manage your finances could be just as important.
Read on to discover three key areas you could consider if you want to reflect your ethics in your financial decisions.
1.Consider who you bank with
When you think about your money having an impact on the world, one area you might overlook is your savings.
Your cash doesn’t simply sit in your savings account until you withdraw it. Banks use this money to finance their activities, including lending money to individuals and businesses. In some cases, it means your money could be supporting sectors that don’t align with your views.
According to the Make My Money Matter campaign, the five biggest high street banks in the UK – Barclays, HSBC, Santander, Lloyds and NatWest – provided fossil fuel companies with $55 billion (£42.3 billion) in 2023. So, your bank could be using your money to finance businesses that are expanding in the fossil fuel sector and significantly contributing to climate change.
There are other ways your bank could use the money collectively saved by its customers that you don’t agree with. For example, they might lend money to businesses that have poor records for human rights in their supply chains or are involved in the arms industry.
It can be challenging to discover how a bank might use your money and its criteria for lending.
A Which? investigation revealed the best and worst banks when it comes to environmental issues. Of the “big 5” high street banks, Lloyds was ranked the best, but some smaller banks had an even better record.
If you want to incorporate other social or environmental issues into your banking decisions, Ethical Consumer could be a good place to start as it covers a wide range of ethical concerns.
2. Make your values part of your investment decisions
Investing is often part of a wider strategy to grow your wealth over the long term, and it might present an opportunity to align your finances with your ethics too.
A Morgan Stanley report suggests it’s something more investors are considering. In a survey, more than three-quarters of individual investors around the world said they were interested in investing in a way that aims to achieve market-rate financial returns while also considering the positive impact. What’s more, 57% said their interest had increased over the last two years.
When you’re investing, there are lots of ways to incorporate your values into the decisions you make.
For example, you could choose a fund that has an ESG (environmental, social, and governance) criteria. With many different funds available, it’s often possible to find one that broadly aligns with your personal views on key ESG issues.
However, it’s important to remember that an investment that reflects your values isn’t automatically right for you. Some might take more risk than is appropriate for your circumstances or mean that your overall portfolio wouldn’t be diversified.
If you’d like to discuss adjusting your investments to better reflect your values, please contact us.
3. Update your pension investments
In most cases, your pension will be invested with the aim of delivering long-term growth that could support your retirement goals. As your pension is often among the largest assets you own, paying careful attention to how it’s invested could boost your ethical credentials.
Indeed, the Make My Money Matter campaign estimates that for every £10 that is placed into a pension, £2 is linked to deforestation.
Every month, around £10 billion is paid into pensions in the UK. So, adjusting how it’s invested has the potential to leverage significant positive changes. In fact, Make My Money Matter estimates UK pensions have the potential to invest more than £1 trillion in climate solutions by 2025 – 50% of the money needed to reach the UK’s net zero goals.
Pension providers will typically offer a range of different funds to invest your retirement savings. These often include several different risk profiles and ones that consider ethical issues.
If you haven’t selected how you’d like your pension to be invested, your money will usually be invested through the default fund. So, it may be worthwhile to check the other options to see if a different fund could be more suitable for you.
Of course, the ethical considerations of a fund aren’t the only factor you should consider. You might also need to factor in the risk profile of the fund, your investment time frame, and what other assets you hold to ensure your decision aligns with your circumstances and aspirations.
Get in touch to talk about your finances
Incorporating your values while ensuring your financial plan continues to reflect your circumstances and goals can be a difficult balancing act. As your financial planner, we could help you strike the right balance and are here to answer any questions you might have.
Please note: This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
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.
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.
