The colour of money: how can I make my ISA investments greener?
Making more ethical choices for our savings can help to tackle global problems. By Elizabeth Anderson
With climate change and global warming becoming an increasing concern, many of us are making small changes to do our bit – such as recycling more or reducing our plastic use.
But one area where you perhaps have the potential to make the biggest difference is in your savings and investments. Your money may be funding or investing in companies that contribute to global warming, deforestation or water pollution – global banks provided $669bn worth of finance towards fossil fuels in 2022, according to the latest Banking on Climate Chaos report.
It can be hard to know exactly where your money is going. There has been backlash against greenwashing, where companies mislead consumers into thinking their products are more eco-friendly than they actually are.
So if you want to make your ISA more ethical, where can you start?
Where to start?
If you like the idea of earning a set rate of interest, you may want an ethical cash ISA.
The top climate-friendly cash ISAs are offered by Ecology Building Society, Triodos Bank, Skipton Building Society, Yorkshire Building Society, Nationwide and Charity Bank, according to Good With Money, a website that provides information on ethical saving and investing.
Ecology Building Society, Triodos and Charity Bank are all specialist ethical finance providers. Ecology’s easy-access cash ISA pays annual interest of 4 per cent, while Triodos’s no-notice account offers 3.5 per cent and Charity Bank offers 3 per cent on its 33-day notice cash ISA.
Skipton, Yorkshire and Nationwide building societies are not specialist ethical providers, but they are noted by Good With Money because of their commitment to sustainable banking.
Skipton’s easy-access ISA pays 3.8 per cent, Yorkshire easy-access ac
count pays 3.9 per cent and Nationwide is offering interest of 4.25 per cent on its one-year fixed-rate ISA.
Audrey Mann, who works as a technician at a school in London, opened an ethical cash ISA a year ago. She likes the idea of her money supporting positive change.
Audrey has an easy-access cash ISA with Triodos Bank, which pays interest of 3.5 per cent.
Triodos, which launched in the UK in 1995, ensures that all money saved or invested through its platform is loaned to companies or projects that aim to make a positive and lasting impact on society, culture or the environment.
“I feel the values are in line with what I want for me and my family. I have two young children and I feel this is a small, simple way to safeguard their future. I don’t want to support sectors such as weapons or fossil fuels,” she says.
Longer-term options?
For those looking to save for the long-term – perhaps over a period of five years or more – then an investment ISA may be worth considering.
Ethical or “responsible” investing is becoming increasingly popular in the UK. A recent report from the Financial Conduct Authority (FCA) found that four in five adults want their investments to “do some good” as well as provide a financial return.
It used to be the case that sustainable investing was as simple as omitting traditional “sin” stocks such as oil, tobacco and companies that make weapons. Now, companies can earn their sustainability stripes by promoting environmental, social and governance factors – ranging from renewable energy to cracking down on plastic waste.
When it comes to having an ethical ISA, you could start by thinking about what considerations are important to you – whether that’s climate change, fair treatment of workers or protecting wildlife.
Some providers offer “ethical” portfolios, which invest in companies and bond issuers that have high environmental, social and governance (ESG) standards.
Online ISA provider Nutmeg, for example, offers a socially responsible investment portfolio that you can invest in through an ISA. Other providers including AJ Bell, Interactive Investor and Moneyfarm also offer ready-made, diversified ethical investment portfolios for ISAs.
Another option is to choose your own funds with a socially responsible focus. These funds tend to be actively managed, rather than passive tracker funds, so may come with higher fees.
Myron Jobson, a senior personal finance analyst at interactive investor, says it’s worth doing thorough research if you are committed to a particular cause. The FTSE4Good UK Index, which measures the performance of companies demonstrating specific ESG practices, includes the oil company Shell.
“The inclusion of companies like Shell in the FTSE4Good UK 50 index may raise an eyebrow, but some investors argue that the company has ‘green’ credentials because of its renewable energy division as part of plans to become a net-zero emissions energy business by 2050,” he adds.
The values are in line with what I want... I don’t want to support weapons or fossil fuels