Sustainable

Money

Money and Climate Change

It may not feel like it, but where you keep your money and how you invest it can make a big difference for the climate. The financial institutions you choose to keep your money with or invest your pension with may be bank rolling the climate crisis. As a consumer, the decision you make with your money can therefore have a major impact on the environment. Here we will explore which banks are investing in fossil fuels and making climate change worse and where and how you can move your current accounts, saving account or cash ISAs and pension funds to have the greatest positive impact.  

Since the signing of the Paris Agreement at the end of 2015, when every nation on Earth committed to limiting warming to 1.5oC, the world’s 60 biggest banks have invested over $3.8 trillion in fossil fuels. A report spearheaded by Rainforest Action Network, looked at how much these banks have invested in fossil fuel projects, through their lending, underwriting of debt and equity issuance. The level of finance flowing to fossil fuels has been increasing year on year, with the exception of 2020, although this was more due to the Coronavirus pandemic than a change in consciousness by these banks. They found that by far the worst financer of fossil fuels is JPMorgan Chase, the giant of American banking, but in the list are also many well-known British high street banks. You can see in the table below how these banks ranked and how much they have invested in fossil fuels. 

Barclays has provided a staggering $145 billion to fossil fuel projects since the signing of the Paris Agreement, making it the worst offender in all of Europe and the 7th worst globally. In 2020, Barclays increased its funding for some of the dirtiest and most extreme fossil fuel projects (e.g., fracking, tar sands and, arctic oil and gas) by 32% compared to 2019. Second on the list is HSBC, with $111 billion invested in fossil fuels. HSBC currently owns stakes in companies that are planning on building a combined total of 73 new coal power plants. Not only is coal the worst fossil fuel for the climate, but it is also incredibly deadly for people. The Centre for Research on Energy and Clean Air (CREA) has estimated that the air pollution form these plants will likely cause an estimated 18,700 deaths from air pollution per year.

The continued funding of fossil fuels by these banks makes a mockery of any claim that they support the Paris agreement – they are quite literally banking on climate chaos. This becomes even clearly when you consider that the International Energy Agency (IEA), the world leading energy organization, has made it explicitly clear, if the world is to have a chance of limiting warming to 1.5C there can be “no new oil and gas fields approved for development; no new coal mines or mine extensions”.

Below you can find out how to divest from these financial institutions and ensure that your money has a positive impact.

Turning your money green

Current accounts

Ethical consumer, the non-profit website, ranked 36 UK banks and building societies on their commitment to tackling climate change and their reporting of emissions. They found that the best rated bank was the Bristol based Triodos bank, one of the world’s leading sustainable banks and one of the most ethical companies ranked by ethical consumer. Several other banks received high scores including the app-based banks Monzo and Starling and the building society Nationwide. The Co-operative bank was the only high street bank not to receive the worst rating due to its policy of not providing financing for any new fossil fuel projects. Among the worst rated banks were all the big high street banks such as the five mentioned above, but also Citigroup, Tesco, Halifax and, TSB Bank. Where possible these banks should be avoided.

Though if you currently bank with any of these institutions, an easy thing you can do to send a clear message that you do not support their actions on climate change, is to divest your money and switch to a more ethical bank. By clicking on the image below you will find a guide that provides step-by-step instructions on how to switch banks. 

Saving accounts and cash ISAs

Given the difficult events of the past year and a half, it has become increasingly evident how important it is to save and ensure personal financial resilience. Unfortunately, given the current low base interest rate set by the Bank of England, it is difficult to make money from cash savings. It may therefore be tempting to choose stocks and other investments, as the gains are likely to be greater than those from cash saving. However, there is always the risk that you could lose money as the value of investments can fall as well as rise. Cash savings protect against this with deposit protection from the Financial Service Compensation Scheme (FSCS) and relatively reliable interest rates. If you choose to open a cash savings account, it is worth looking into the different types and which one would best suite your needs. You can find out about the different types of savings accounts here.

If you have decided you want to open a savings account or you already have one, then an important consideration is how ethical your provider is. Luckily, there are a myriad of ethical alternatives to the high street banks which are key funders of fossil fuels. You may be concerned that by choosing a more sustainable savings account, you will have to compromise on your savings interest rate. Although the most sustainable providers do not tend to have the highest rates, neither do they have the lowest. And given how low interest rates are at the moment, by opting for a sustainable saving account, you may only earn a few pounds less than if you had chosen an unsustainable account that had a slightly higher rate – in fact this might be one of the best times to switch to an ethical account.

Luckily there is a wider range of options for ethical savings accounts than there are current accounts. Ethical consumer has ranked 52 of the main savings accounts on their ethics and environmental ratings. Of the major high street banks, again the Co-operative bank was the only one which ethical consumer recommends and is considered a leader in the sector in ethical banking. Where it loses points is the activities of some of the investment groups that bought the bank in 2013. However, as with current accounts, Triodos bank came out on top as the best option, followed by the Ecology Building Society and Charity Bank. Both Triodos and the Ecological Building Society are members of the Global Alliance for Banking on Values (GABV), which is a network of banks using finance to deliver sustainable economic, social, and environmental development. Other banks not listed here also received high scores and may better suite your needs. It is therefore recommended that you do your own research to decide which would be best for you.

Below you will find a guide on how to open a savings account and how to switch savings accounts.

Pension funds

Another way you can make a difference with your money is through your pension. A staggering £34 trillion is estimated to be invested in pensions around the world according to a study by the Thinking Ahead Institute, that’s nearly half of the global investment market. In the UK, pension wealth totals £6.1 trillion, making up 42% of all wealth in the country. Yet less than 1% of assets held by the 100 largest pension funds in the world are invested in low-carbon solutions.

For most of us, our pension will be the largest investment we have and unless your pension is in a specifically dedicated ethical fund, then there is a strong likelihood that your money is invested in unethical sectors such as fossil fuels, arms, or tobacco. What makes an ethical fund ‘ethical’ is that it will have exclusion criteria, meaning it will avoid investments in sectors it deems unethical or unsustainable. However, many ethical pensions strive to not only avoid investing in these damaging sectors, but to ensure that your money is invested in supporting positive changes. This could be helping fund the transition to a low-carbon world or healthcare funding. Therefore, by switching to an ethical fund, you can ensure your money is having a positive impact. In fact, a report by Nordea, a Nordic financial service company, found that greening your pension could have an impact 27 times larger than other options for reducing your carbon footprint. However, shifting to a most sustainable pension fund cannot substitute emission reductions elsewhere or in reducing consumption. It simply emphasises the role your money can play and how vital it is to ensure you are investing in a sustainable future.

So, what can you do? Well, if you have a pension, you likely have one of the two main types of pensions – personal pensions/ self-invested personal pensions (SIPPs) or a workplace pension. Personal pensions or SIPPs are very similar, in that they tend to be set up by an individual and provides a much greater choice over your investment. However, personal pensions and SIPPS are most suitable for those who are happy to manage their own investments and should not be considered without the advice of an independent financial advisor or impartial organization. Workplace pensions on the other hand, are usually set up by your employer and normally both you and your employer contribute. Following the auto-enrollment scheme brought in by the government in 2012, almost 80% of employees now have a workplace pension. Neither a workplace pension nor personal pension is necessarily more sustainable, although the more flexibility offered by personal pension means you can have more control over where your money is invested. With workplace pensions, your money is usually placed straight into the default fund, which rarely meets strong ethical standards. However, most workplace pensions offer several different funds and so it can be relatively easy to switch to a more ethical and sustainable fund – sometimes these funds are called ‘sustainable funds’, ‘stewardship funds’ or ‘low carbon funds’.

At the moment, there are no official standards for what constitutes an ethical pension fund and so although a fund may carry the name ‘ethical’ or ‘sustainable’, it may not align with your values. This is known as greenwashing. You will therefore have to do your own research to ensure that the fund is right for you. Ethical consumer provides a good overview of the different options and their ethical and sustainability credentials.

Below you can find a guide for how to switch to the ethical fund within the National Employment Savings Trust (NEST), the non-departmental public body which was established under the same act as auto-enrolment to ensure everyone had access to a high-quality workplace pension scheme. Nest is also now the largest pension scheme provider with 9 million members. If you are not currently with NEST, but wish to switch to the ethical fund of your current provider, most will provide guidance on how to switch funds. 

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