Ensuring your investments are good for your wallet and good for the planet.

This small personal change we are about to discuss helps the environment and is, arguably, more powerful than going vegan, changing light bulbs and taking your car off the road combined. But just to be clear from the beginning, when we are talking about ensuring your investments are good for the planet, we are not just talking about wealthy individuals. The following information will apply to the majority of adults.

Article by Dan Sherrard-Smith, founder of MotherTree

(Note: no money is made from this article and MotherTree makes no money from any of the brands mentioned below).

As individuals, helping our environment can seem overwhelming at times. We are fed a whole bunch of actions to do to save the planet. Go vegan, cycle instead of driving, change the light bulbs, turn the lights off, switch your energy to green, and on and on.

The list seems endless.

But there is one area, arguably above all else, that has the biggest impact. It changes how the biggest companies operate. It alters how politicians govern.

And that power is with you.

The answer?

Your finances.

More specifically, where your money is invested.

According to the Financial Times’ Alice Ross, it comes down to how you invest. And you invest in more places than perhaps you realise. And before you stop reading, let’s reiterate that we are not just talking about people who have thousands of pounds to invest.

There are two places where the average person can ensure their ‘investments’ are good for the planet and bring about genuine change:

1. Your pension
2. Your bank (more specifically, your current account)

Where are your pension funds invested – including workplace pensions?

Disclaimer: What follows is not investment advice.

The UK pensions market was valued at £2.2 trillion in 2019.

2 point 2 trillion going to companies chosen by the pension funds.

L&G are the biggest fund manager in the UK, looking after £25 billion in assets. Where they choose to put their money is going to directly influence the kind of future we have.

But do we really have a choice when it comes to our own money.

This is what happened when I started digging:

This story is very important because since 2012, over a period of a few years according to the size of the company, all employers were required to set up a work-place pension for their employees. For most people, that money is just deducted from their wages and they don’t give it any more thought.

But we should!

At a previous job, I had been auto-enrolled into an L&G pension. I hadn’t touched it since I left that company back in 2017. So where had they put my money?

Pension companies are not clear on where their investments are going. L&G is no exception. At first glance, they had put my cash in a fund called “L&G PMC Global Equity FW 50:50 Index Fund G25”.

I had no clue what that meant!

Further reading didn’t shed much more light, with the blurb stating that they invested the fund “in global markets”. Really narrowed it down there L&G – thanks!

But in a tiny link hidden under a bunch of text, I found the fund fact sheet. And this listed the top 10 companies my pension was invested in.

I was shocked by what I found.

• 6% in global mining corporation Rio Tinto (digging up large swathes of Africa),
• 3% in British American Tobacco (those guys are still in business?!) and worst of all,
• 5% in oil and gas (Shell and BP).

So, despite screwing in all those energy-efficient light bulbs, moving to a vegan diet and trying not to buy anything wrapped in plastic, it was all fairly pointless given I was funding some of the most notorious companies in the world.

But there’s more, and this really emphasises how you can ensure your investments are as good for your wallet as they are for the environment.

Why had L&G chosen this fund?

Well, their job is to grow their pension pots. So, the returns on this fund must be good, right?

And it was, at a 32% return in April 2021 versus April 2020. (For every £1 I had in the fund, I was making £0.32).

Could they justify their choices through better returns versus the green alternatives?

I wanted to make sure.

I logged into Hargreaves Lansdown and hunted down the first green fund I could find: Pictet Clean Energy. Their objective of increasing “the value of your investment while seeking to achieve a positive environment and social impact,” was promising.

And its return across the same time period as the L&G pension?

A staggering 61%.

That’s DOUBLE the return on L&G.

So, L&G was making me less money and investing in companies that are worse for the environment.

But there is hope.

I hadn’t even thought to check my pension after I left my job, but I am now in the process of switching it to a provider that offers green funds, at a reasonable return. Everone can do that.

Remember, this is not investment advice. But worth double-checking where your pension is being invested and what you can do about it.

What is your bank doing with the money that sits in your current account?

The place where your money is held could be funding cluster bombs (seriously!).

My sister mentioned to me a while back that each bank had a very different carbon footprint and had very different stances on which companies to fund.

I hadn’t registered what that could mean at the time but as I researched pensions, I wondered how different banks’ strategies could really be.

It turns out that who you bank with matters.

Because where you invest your cash has a huge impact on the global economy. There are banks explicit about putting your money in green objectives, like Triodos, and those with not such a great track record: Hand to face for RBS funding of toxic sands mining.

The big banks are disappointingly opaque about where they put your money.

And there are some seriously messed up choices going on out there.

Need an example? Try Barclays, HSBC, RBS (them again) and others piling hundreds of millions of pounds into a company making cluster bombs.

Where you decide to put your money matters.

It has a direct impact on the world we live in, both environmentally and socially.

I don’t know about you, but I find hope here. With a little effort, we can influence the biggest companies in the world.

Our actions over the next couple of years will define the state of our Earth for the following generations. We still have a chance to live in a cleaner, healthier future.

How MotherTree can help you ensure investments are good for the planet

I was so incensed by what I had discovered, that I was determined to do something to ensure ordinary folks like me could ensure their investments are good for the planet. And I am very proud that this year I have launched MotherTree which very quickly and easily helps you to find out how green your bank and pension provider is and what you can do about it.

It’s just a small action to take, But you never know, it might just save the world.

Disclaimer, this is not investment advice!