Opinion offer: How consumers can ensure their savings are making a positive impact 

by | Oct 19, 2023

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By Ecology Building Society CEO Gareth Griffiths

Three-quarters of savers want their investments to have a positive impact on the environment and society. And yet awareness of ethical and sustainable financial products remains low. Over half (53%) of people in the UK don’t know how their bank or building society uses their money, according to our research. 

Investment professionals can seize the opportunity to bridge this information gap and become trusted advisors in this rapidly growing market. But care is needed, as last year saw a 70% global increase in greenwashing incidents by banks and financial services companies, and Which? recently put half of the UK’s high-street banks in its ‘red’ warning category based on the banks’ green credentials. Looking good, rather than doing good, has been the aim of too many for too long. 

 
 

In this complex context, how do financial advisors help their clients ensure their savings are genuinely making a positive impact on both people and the planet? We have three tips:

1. Know how to check credentials

You can ensure you understand exactly how different providers and products invest people’s money by using a couple of practical tools. 

 
 

First, banks invest in multiple companies, including ones which might not align with your clients’ values. To find out which ones are funding environmental catastrophe, the Bank Green online tool can help. For UK building societies, the ethical situation tends to be clearer, as funds are typically used to lend to borrowers for a mortgage. 

The second method is to check and see if a provider has climate targets. In terms of greenhouse gas emissions, the best way for banks and businesses to measure themselves against the Paris Agreement’s goal of limiting global overheating to 1.5°C is the Science-Based Targets initiative. A collaboration between the United Nations, the World Resources Institute, CDP (Carbon Disclosure Project) and wildlife charity WWF, it offers a dashboardon its website that details which companies and financial institutions have set targets.

2. Research the best sustainable savings options out there

 
 

To keep yourself up-to-date with the sustainable personal finance sector, read consumer advisory sites like Ethical Consumer and Good with Money. They independently rank providers by their ethical practices, rather than just comparing interest rates. In a changing world, measuring impacts on the wellbeing of humans, wildlife and the environment is going to become just as important as profit. 

3. Understand what to avoid 

Investment no-no’s to steer clients away from include banks or financial services providers with money in arms, tobacco or fossil fuels. No matter how many beautiful images of wind turbines and forests they post online, the oil and gas giants only spend 1% of their cash on green energy – and most of that goes on marketing. What they say and what they do are quite different.

Why is it important to develop this sustainability investment expertise? The simple answer is that it will prove hugely beneficial. At this pivotal moment in history, savers are waking up to the fact that many of the conventional investments of the past are damaging our environment. It simply makes no sense to invest in the destruction of the living ecosystems on which we all depend. 

The myths are that sustainable and ethical investments don’t perform as well as traditional ones, clean energy is more expensive and responsible businesses don’t make as much profit because their motivations lie elsewhere. But this is untrue. There is often very little, if any, premium for green energy, ethical insurance or sustainable investments. And sometimes they are better value or more profitable than their old-school counterparts – in fact, one in six ESG funds outperform conventional funds, and firms that implement ESG practices outperform others by nearly 5%. What’s more, the MSCI USA Extended ESG Focus Index performed within 0.46% of MSCI USA Index in 2022, and outperformed it for the four years prior.

The reality is that change is happening. And fast. With scientists describing the recent unseasonably warm temperatures as “gobsmackingly bananas” and extreme weather events on the rise all over the world, people increasingly don’t want to put their money somewhere that’s going to make the situation worse. They want it to go towards keeping our planet habitable.

Investment professionals have got a key role to play in leading the charge to a better way of saving money, because the wider financial services sector isn’t responding to changing consumer needs. Nor is it mobilising to address the climate crisis at the urgent pace required. It’s stagnating. Much more must be done to challenge the current model around savings. We need not just more start-ups, but more up-starts. While we wait for the inevitable legislation to force change, more can, and should, be done to offer people positive solutions which are both sustainable and profitable. And financial advisors are in a unique position to direct people towards the best ones.

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