There are steps we can take to make every aspect of our lives more green, and our finances are no different.
So, Nicholas Harding, CEO of Lending Works, discusses ways you can invest your money ethically.
The principle behind investing is simple: to grow your money over time. Given that interest rates are currently low and inflation is skyrocketing, the benefit of investing your assets rather than leaving them sitting in a savings account is clear. But, it isn’t all just about increasing your wealth. If you pick your investment options with care, it could mean that your assets are able to do some good in the world, as well as netting you a profit. Here’s what you need to know about green finance.
What is ethical investing?
Ethical investing — sometimes called socially responsible investing — is any form of investment scheme which aligns with your personal principles. So, that could mean avoiding any kind of investment that funds social or environmental practice that you don’t agree with. It can also involve actively seeking forms of investment that help to fund a good cause.
Public interest in sustainable living is growing by the day (and rightly so). As a result, there are currently plenty of ethical investment options on the market. Many also offer rather rewarding returns, so you can invest conscientiously and make a profit at the same time. If you’re the sort of person who likes to make a positive difference to the world, you might want to consider some of the options below.
Switch to an ethical pension
Everyone should have a retirement savings plan, and pensions are one of the most effective ways to save towards this. But, a number of pension schemes out there still use investor’s money to fund unethical industries, like fossil fuels or deforestation. And, many pension funds don’t offer much information about exactly how your money is used. This can make it tricky to make an informed or environmentally friendly choice.
An ethical pension fund will have clear information on which practices they do/don’t support, so it’s just do your research. If possible, try to find a scheme that offers bespoke saving, so you’ll have more control over your money. And, don’t forget to seek help from a financial advisor.
Support ethical banks
The ethical issues of banking have been widely reported on in recent years. Many of the major banks being implicated in all manner of polluting industries and human rights scandals. But, in the modern age of online banking and contactless payments, it’s almost impossible to avoid banking completely. Particularly if you need to use a savings account or ISA.
The solution is to do your homework and choose a company which aligns with your values. It’s often the smaller, newer banks which offer the most ethical options. So, don’t just go with more established names. More banks are catching on to the fact that consumers looking for green finance options. Even the major banks are changing their funding policies. As a result, you should be able to find one which doesn’t conflict with your principles.
If you do choose to open a savings account with an ethical bank, just bear in mind that you’ll still be subject to the current low interest rate. So, while it is a low risk form of investment, it’s not necessarily the most lucrative option.
Community investment schemes and funds
One great way to ensure you’re investing your money ethically is to look a little closer to home. There are likely to be a number of community projects and funds right on your doorstep, meaning you can invest in schemes, businesses and causes that benefit the local area directly. And, as you might be supporting a local scheme, you’ll get the pleasure of actually seeing your money benefit the community firsthand.
Of course, as with any investment, you should be aware that it’s always a gamble, so you should weigh up your options carefully and try to diversify your portfolio as much as possible. If you want a lower risk option that has many of the same benefits, you could try peer-to-peer lending. This allows you to lend directly to businesses and individuals without the need for a bank to act as a middleman, but your investment is spread across lots of different loans, which lessens the risk and buffers the potential losses you’ll suffer if a borrower defaults on their loan.
Now that there are so many green finance options on the market, there’s no need to choose between profit and principles anymore. You can now invest in funds which benefit the local community, choose socially responsible banks, and even find ethical pensions. The most important thing is to do your research and find options which speak to your values.