Investors – or anyone with a savings account or pension – could be unwittingly funding climate change, smoking or the arms trade. But should it matter?
Unless it’s under the bed or in a deposit box, your money doesn’t just sit still: it’s being constantly invested in businesses to generate returns.
What those businesses do with your money has a very real effect on the world we live in. You could be funding everything from the development of a life saving vaccine, to the manufacturing of deadly weapons.
But what if you only invested in the good – whilst excluding the bad?
Coins against climate change
Since 2017, I’ve been trying to avoid investing in companies that contribute to climate change, a journey I recently wrote about for Which? Money.
Three years ago I lived in Australia, and the mass death of coral on the Great Barrier Reef seemed a horrifying reminder that time was running out to protect the planet.
Whilst this is a huge endeavour, I saw my job as relatively simple – get my pensions and investments out of fossil fuel companies.
I started by setting up an ‘ethical’ pension and, when I returned to the UK, opened stocks and shares Isas with investment companies Vanguard and Nutmeg.
Both investments have been impressive: they were simple to set up, charge low fees and (touch wood) have been recovering quickly from COVID-19.
But writing about values-driven investing has led me to reconsider. I was appalled to find oil company Royal Dutch Shell among the holdings in Vanguard’s European SRI fund. And my confidence in the data used by Nutmeg to include and exclude companies has been shaken.
Still too difficult
I don’t think my original aim was naive. There are highly regarded investment funds out there that screen out polluting companies, headed by fund managers with decades of experience.
The problem is, it’s taken me three years and thousands of pages of jargon to find them.
Picking investments should require thought and research. That shouldn’t mean all investors need to be experts, or be capable of reading between the lines of ill-defined and inconsistent industry labels like ‘ethical’, ‘socially responsible’ or ‘Environmental, Social, and Governance’ (ESG).
That’s why Which? is calling for the Financial Conduct Authority to regulate the use of industry labels, so investors have a better idea of where their money is going.
The stakes are high – the fund management industry now offers thousands of funds to values-driven investors. Pension providers are slowly following in their footsteps. Savings accounts may come later, although there’s little on offer at present.
Listen to more about ethical investing in the latest Which? Money Podcast:
Do you care?
Which? thinks investors, as consumers, should know what they’re buying.
But we’re agnostic about which issues should be prioritised, or whether you should take issues into account at all when it comes to your investments, pensions or savings.
Do you think morals and money should ever mix?
Have you tried to pick your own investments, to avoid or embrace certain industries?
Let us know in the comments.