ETHICAL BANKING: HOW TO MAKE YOUR MONEY GO GREEN

Where we choose to store our money should be about more than convenience, customer service and interest rates – by deciding to bank ethically, we can all make a huge difference to our planet’s future, explains Ruth Jackson-kirby

Taking financial control can make a difference to our planet’s future

Over the past few months, while we sat at home wondering when we would ever have control of our lives again, the planet was given a chance to breathe. Air pollution across the UK fell by an average of 40% in April, carbon emissions fell by a record 5% and the demand for fossil fuels declined. It’s too soon to say what long-term effect lockdown will have, but it shows that it is still possible to help the environment. And the good news is it is something you have some control over without needing to leave your home.

In fact, one of the most powerful weapons you have against climate change is your finances. According to one report*, placing your pension money in green investments could have 117 times the impact of someone limiting themselves to one return flight a year. And that’s not the only way you could help. Your money, whether it’s the small amount sitting in your current account or (hopefully) thousands in your pension pot, could be busy fighting climate change when you’re not using it.

What banks do with your cash

Obviously, when you deposit money into a bank account, it doesn’t simply sit in a vault somewhere. Banks use the deposits in their savings and current accounts to fund their other banking activities, from loans to investments. This means your money could be funding all sorts of projects that you don’t agree with.

Despite a growing worldwide movement to tackle climate change, many of our banks are continuing to fund the problem rather than the solution. Research by the Rainforest Action Network found that the world’s biggest banks invested £1.5tr into fossil fuels between 2016 and 2019. The report picked out Barclays and HSBC as continuing to fund fossil fuel projects despite the 2015 Paris Agreement (a pact between 195 countries to cut greenhouse gas emissions). You can search for your bank at yourethicalmoney.org to find out more about its ethical credentials, from whether it lends to companies with poor human rights records to how many women sit on its board. Taking the time to look at how your money is affecting the planet and making decisions based on that can make a real difference.

One of the most powerful weapons you have against climate change is your finances

Day-to-day green banking

By moving to an ethical bank, you will know your money isn’t being used to fund anything that could have a negative impact on society. These banks do not invest in, or lend to, companies that trade in things such as arms, tobacco or fossil fuels. Instead, they lend to firms that are doing good in the world; this could be renewable energy companies or community projects. Some also offer mortgages to people building sustainable homes.

Ethical banks in the UK include Triodos Bank, The Co-operative Bank, Ecology Building Society, Charity Bank and Reliance Bank. The best known of the five is The Co-operative Bank. It has had an ethical policy since 1992, meaning it doesn’t lend to companies that don’t fit with its values, so it doesn’t do business with the oil, coal or gas industries.

If you like perks with your banking, The Co-operative Bank’s standard current account is free and you can earn up to £5 a month in rewards if you pay in at least £800 a month, don’t go into an unauthorised overdraft, pay out at least four direct debits and log into online banking or the app at least once a month.

You can choose to take the reward yourself or nominate one of the bank’s chosen charities to receive the money instead.

Another option is Triodos Bank. Founded in 1980, Triodos only lends to organisations that are positively affecting the environment and society. This means your money goes to support renewable energy firms, social housing, organic food and farming and Fairtrade organisations as well as charities and social enterprises.

Its partnerships include the Soil Association, Ecotricity and the RSPB.

The Triodos current account has all the bells and whistles you would expect from a big bank: you get online and mobile banking, overdraft options and a debit card. In addition, the debit card is biodegradable, unlike the other 164 million payment cards in the UK that are made from PVC and end up in landfill. The drawback with the Triodos account is the £3 monthly fee. Why would you pay for a current account when so many high-street banks offer free accounts? Triodos argues that by choosing to pay a set fee each month, you

avoid the hidden charges and overdraft fees that other banks charge.

Reliance Bank is the oldest of the ethical banks. It used to be called The Salvation Army Bank and was founded in 1890. It offers current accounts, savings accounts, mortgages and loans, focusing on lending money to organisations that deliver ‘positive social impact’. It also donates up to 75% of its profits to The Salvation Army International.

Charity Bank uses the money in its savings accounts to provide loans to charities that would struggle to borrow from traditional lenders. It is owned by charitable foundations, so is focused not on profit, but on lasting social change.

All five of these banks are regulated by the Financial Conduct Authority and covered by the Financial Services Compensation Scheme, which means your savings are protected for up to £85,000 compensation if an authorised bank fails.

If you’re not sure where to start, your best bet is to find an independent financial adviser who specialises in ethical investing

Use your savings for good

Ethical banks also offer savings accounts where your deposits are used to fund their socially responsible lending. The good news here is their interest rates are very competitive when compared with main high-street banks.

The Ecology Building Society offers a cash ISA paying 0.6%. In contrast, the Barclays cash ISA pays 0.1%, HSBC pays 0.1% and the Natwest cash ISA pays just 0.01%. The best possible comparable cash ISA rate is 1.02% from Cynergy Bank**. On a £5,000 deposit, by going green you’ll lose £20 a year in interest compared with the absolute best buy, but you will know your money is helping people and the planet.

None of these rates are dazzling, but with the Bank of England rate sat at 0.1%, interest rates are poor across the board. This is where the added attraction of ethical banking can really come into its own. Instead of focusing on the small returns you are earning on your savings, you can think of the good your money is doing. For example, Ecology Building Society uses its deposits to fund loans to charities and community businesses. ‘As well as supporting energy-efficient self-builds and renovations, we also provide mortgages for community-owned businesses, affordable housing, including community-led housing, shared ownership and organic smallholdings, and those that enable low-impact sustainable lifestyles, such as moorings for houseboats,’ says Daniel Capstick, mortgage manager at Ecology Building Society.

Invest to protect the planet

Your money can really make a difference to the environment when you invest it. Whether you actively choose banks that avoid investing in companies involved in the fossil fuel industry or you simply pop your money into an ethical fund, you can have an impact.

‘Our research tells us that many people want to invest ethically, but aren’t sure where to start,’ says Moira O’neill, head of personal finance at interactive investor. ‘Ethical investing is hugely subjective by nature, so the first thing to do is bear in mind your own moral values. Don’t like the idea of investing in companies that are involved in animal testing and armament production? There are funds that strip out such organisations from their investment universe.’

Choosing the right investments to match your ethical stance can be tricky. ‘If you have a financial adviser, they will be able to create a portfolio that best suits your values and ethical outlook,’ says Jon Dean, head of retirement strategy at finance software firm Altus. ‘If you are more used to looking after your own

investments, for example on a platform such as Hargreaves Lansdown or Fidelity International, you’ll have access to possibly thousands of funds and shares. Here it gets harder for DIY investors to find ethical and sustainable investments.’

Investment firms can help you choose the right funds. For example, interactive investor has a curated list of funds, the ACE 30, which it thinks are a good choice for an ethical investor. ‘However, you will need to read the fund’s prospectus to find out whether a fund manager’s idea of sustainable matches with your own,’ says Jon.

A simpler option is to use a digital investment advice service. Companies such as Nutmeg, Wealthify, Wealthsimple and Moneybox will manage your money for a small fee. You tell them your investment goals and your timeframe, and they will put your money into a socially responsible investment portfolio.

If you’re not sure where to start, the best bet is always to get independent financial advice. You can find an independent financial adviser (IFA) who specialises in ethical investing at ethicalinvestment.org.uk/for-private-investors.

By moving to an ethical bank, you will know your money isn’t being used to fund anything that could have a negative impact on society

Use your pension’s superpower

The way your pension is invested can also tackle climate change. As it is invested for the long term and can build to be a sizeable amount of money, investing it ethically can have a real impact. Research by sustainable fund manager Nordea found that putting your pension into investments that support the planet could save 2,223 tonnes of carbon over your working life. To put that in perspective, cutting back to just one return flight a year would save 19 tonnes on average.

‘Huge amounts of money are contributed to pensions every year, but many people don’t realise the enormous power this money has to improve the way companies operate,’ says Lorna Blyth, head of investment solutions at Royal London. ‘You have choices about where to invest your contributions and there are funds available that invest in companies dedicated to developing environmentally friendly technologies or are run in an environmentally sustainable way.’

Thanks to auto-enrolment, millions of us now have money invested in a pension scheme. But, 90% of us make no active decision in what funds and companies our money is invested in, says Jon. ‘Ask your HR department or pension provider what funds you’re invested in and whether there is a sustainable or ethical option for you,’ he says.

Nest Pensions, which has 8.6 million members, is pushing for more responsible investing in its mainstream funds and also offers an ethical fund. There is no need to worry that investing with climate change in mind will leave you worse off in retirement. ‘The latest evidence shows a well-managed ethical portfolio performs as well as one without these considerations,’ says Jon.

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