- What is Green Finance?
Green finance is about spending and saving your pounds in a manner that helps to move us towards a climate-friendly future.
Green finance, ethical investment and sustainable finance are terms that are becoming increasingly prolific within the financial sector. And as active participants in the local and global economy, we can use our money to act out our values. As well as to contribute to a happy, healthy people and planet.
- Why is it important?
Because like it or not, we live in a world where money makes the world go round…so we might as well direct our spending power into sustainable projects.
That’s not to say that the current form of capitalism [take, make and waste] is a good one – but there are ways that money can help to move towards a greener economic system and society. By using those pounds intelligently, you can operate within the system to change the system. This helps us to move us towards a climate-friendly future!
So let’s go back to the basics. There are two ways that we use our money, and both ways have an impact on the world around us:
- We spend it – giving money to purchase products and services.
- We save it – putting it in savings accounts/investment opportunities, aiming for it to increase in value over time e.g. banking, pensions, ISAs, bonds…
Therefore, there are two ways that we can, with power, have a positive impact on our planet
- Buy buying more ethical and sustainable products and services from businesses that align with our own values
- Saving our money via systems and organisations that will have a positive impact on our world.
At CE we will explore both pieces of this impact puzzle, but for the moment, let’s start with some key definitions, terms and useful concepts that will help you to navigate the maze that is green finance, ethical investing and sustainability within our economy.
Some useful terms to know about, and some green finance definitions.
** Please bear in mind that exact definitions vary. Which is one of the reasons why this sector is SO CONFUSING! We’ve taken the most widely used and recognised definitions, but bear in mind that these words may be used in multiple contexts, sometimes correctly, other times incorrectly! **
- Responsible Investment – investment that creates long-term social, environmental and economic (sustainable) value
- Ethical Investment – usually refers to negative or exclusionary screening of companies engaged in activities deemed unethical by the investor or that are contrary to certain international declarations, conventions and voluntary agreements e.g. guns, tobacco, human trafficking etc.
- Socially responsible investment (SRI) – approaches that apply social criteria and environmental criteria in evaluating companies.This is used to create a list of ‘good’ companies that can be selected based on their financial (and other important factors) performance. Be aware that the criteria used, and weighting applied to each criterion, varies depending on the investment.
- Impact Investment – Impact investing refers to investments seeking a particular social or environmental objective, it usually takes the form of investing in non-listed companies and is not determined by sector or theme.
- Divestment – opposite to investment aka taking your money out of something. Commonly used when describing the movement of money out of fossil fuel companies.
- ESG – Environmental Social Governance – these are seen as they key factors for measuring the sustainability and societal impact of an investment in a company or business. These criteria help to better determine the future financial performance of companies (return and risk).
- Positive Screening – a process used to isolate Best In Class investments that have a net benefit
- Negative Screening – a process used to exclude companies that do not comply with specific, pre-set social or environmental criteria.
- Green Bonds – a fixed-income instrument (like a normal bond) designed specifically to support specific climate-related or environmental projects.
- UNPRI – UN-driven principles for responsible investment, the world’s largest and most recognised blueprint for responsible investment
So you want to make your money matter, here’s some places to start:
- Spend with businesses that contribute to a better planet and society – buy local, buy fairtrade, rent or borrow rather than buy at all, buy recycled materials, donate to charity – spend your well-earned dollar to businesses and organsations whose mission and values align with yours!
- Green-ify your bank – How does your bank perform in terms of ethical investing, sustainability and walking the talk?
- We found this ranking particularly useful for a starting point for identifying which banks are performing better and worse in this area.
- Green-ify your pension – Research by Nordea found that putting your pension into investments that support the planet could save 2,223 tonnes of carbon over your working life.
- Ask your employer if your pension company is investing in a climate-friendly future. If not, why not? And is there a better one that could be used?
- If you have existing pensions sitting in other places, gather them and invest them in an ethical savings account !
- Green-ify your investments:
- Open up an ethical ISA that positively selects and invests your money in high ESG-rated companies
- If you’re into the tech, most investment apps/platforms offer specific green investments options e.g. Nutmeg, Plum, Wealthify etc.
- Invest in your community – check out abundanceinvestment, crowdfunding platforms such as Triodos crowdfunding and other opportunities to invest in local schemes that create tangible value to a local area.
- Invest in companies that reflect your own values either directly, or via an ethical stocks and shares ISA – NB make sure you read all the TLCs.
We’ll be delving into each of these areas in greater detail in the coming few months. So, keep your eyes peeled for further information and guidance…
Until then, here are some useful websites and places to go for more information:
https://www.theguardian.com/money/2020/jun/13/ethical-investments-are-outperforming-traditional-funds – a good one to have in your back pocket – being green is also more financially profitable! Double winner!