Izzy Howden, 25, had not considered how her personal finances might have any relationship with climate change. “I actively make environmental and ethical decisions elsewhere in my life, I mainly buy second-hand clothing and have been vegetarian for many years, but I’d never really thought about my money in that way,” she says.
But as she came across campaigns and activists highlighting the link, she began to research who her pension was with and where her bank invested money. She is part of a growing number realising that how we spend and save, and the financial products we buy, can have a much greater positive impact on the planet than where we go on holiday, or how many plastic straws we shun. “I found out my bank had invested billions into fossil fuels and was continuing to do so, so I decided to switch,” she says.
“I’d never really thought about my pension much at all. But understanding that it’s my money and it’s invested on my behalf has made it really important to me that it’s not being put towards things I disagree with. I hadn’t ever realised how big of a carbon footprint a pension has, so knowing now that mine is in an ethical pot and is actually having a positive impact makes me feel a lot better. It was a no-brainer.”
In fact, having a green pension is 21 times more effective at reducing your carbon footprint than stopping flying, eating meat and switching to a green energy supplier, according to Make My Money Matter Link opens in a new window, the campaign group urging us to consider where our retirement savings are invested. From pensions to savings, mortgages to loans, there are plenty of ways you can reduce your personal financial carbon footprint, too. In some cases, you’ll be rewarded for doing so, with cheaper deals. Win, win. Here are the options you could consider:
1. Switch your pension
No surprises that many people haven’t a clue where their retirement savings are given that poring over your pension documents is not the most gripping of Saturday afternoon activities. But thinking about what your pension savings are doing is one of the primary ways you can reduce your financial carbon footprint.
If you have an employer and are earning over £10,000 a year you will be automatically enrolled into a company pension. You will be contributing a slice of your salary into it, coming off before the rest of your earnings land in your bank account. This will be topped up by your employer and with tax relief. The money will likely be in an investment fund chosen by your work scheme’s provider, made up of stocks and shares in different companies. It could be that your money is therefore being used to prop up businesses that you would not normally feel comfortable supporting: arms manufacturers, for example, or companies that produce fossil fuels. You can find out what fund your retirement savings are invested in by logging onto your company pension scheme website, most people will have a digital account. If you don't know how to do this, ask your HR department.
You can usually switch what fund you are invested in, to, for example, an ethical fund. If there is no such offer, lobby your employer, starting with the HR team. Make My Money Matter has lots of helpful advice on its site including a template letter Link opens in a new window for you to send to your HR team. Remember, this is your money, and it is not unreasonable to ask for a say over what is done with it.
2. Save and invest in an ESG fund
You might think of your savings sitting in your ISA, waiting patiently for you to withdraw them, but they are actually being used by the bank you’re with to invest and lend to other businesses. The same is true of any cash in your current account; could you switch these to a bank that lends to more ethical and environmentally minded organisations or projects?
If you are saving for the longer term, consider investing in stocks and shares in companies that are committed to having a positive impact on the planet, via an ESG, impact or responsible investment fund.
The challenge you’ve got is that there is not yet any set objective labelling system to define “impact” or “ESG”, so you will need to look into whether a fund that claims to be green really is, and choose based on where your own personal values lie. Read more about Virgin Money’s own ESG policy.
Some may include organisations that you believe to be environmentally friendly because they have a good recycling policy, for example. Some tech companies are considered ethical, but you might not be so keen on those that aren’t paying their fair share of tax. You could look to investment platforms, such as the Big Exchange Link opens in a new window by the Big Issue, that specifically list only funds they believe are having a positive impact, or use an organisation like Morningstar Link opens in a new window that offers a sustainability rating on funds. The website Good With Money Link opens in a new window offers helpful guides on getting started with impact investment.
3. Opt for a greener mortgage
If you are moving house or buying a new place, consider its energy efficiency, and whether you can improve it. Over 15 per cent of the UK’s total carbon footprint comes from emissions created by our homes, according to government statistics. You could also save money in the process, by applying for a green mortgage, a type of loan that rewards you for making a sustainable choice by offering you cashback, a discount or preferential interest rate for borrowing against an energy efficient home, or renovating to improve your home’s energy performance certificate (EPC) rating.
Virgin Money’s Greener Mortgages range offers borrowers a rate fixed for two or five years that is lower than its core range, for energy efficient, new-build homes, which are A or B energy rated. This is available to those with a minimum 15 per cent deposit and are available across Virgin Money’s residential range which includes options for Help to Buy equity loans and shared ownership loan. Another useful product is Virgin Money’s Home Buying Coach app, which offers information on energy efficiency.
When you apply for a Virgin Money Greener Mortgage the bank will also make a one-off payment to Carbon Neutral Britain Link opens in a new window, which funds clean energy projects, enough to cancel out 5 tonnes of carbon emissions, the average amount generated by heating and lighting a UK home for one year.
4.Consider carbon offsetting
You can also choose to offset your own carbon footprint Link opens in a new window for the year with Carbon Neutral Britain directly. Its subscription, which costs from £6.99 a month, is the equivalent of offsetting 15 tonnes of CO2e, more than the average yearly carbon footprint of an individual, which, says James Poynter, director of business development for Carbon Neutral Britain, would cover all of your emissions, including travel such as commuting and flights, your home energy use, waste, and consumption. A year's subscription will pay for 240 trees to be planted in sustainable projects around the world.
Carbon offsetting is sometimes accused of being a short-term fix to the overwhelming problem of climate change. The best solution is to always reduce your emissions, says Poynter, “but in many cases emissions cannot be removed completely, as current technology does not allow it. That is where offsetting has a part to play, in helping stop climate change now. IPCC studies as well as UK Climate Change Committee studies have shown that the next five years are the most important in reversing our climate impact, before it is too late.”
It is important, however, when buying financial products that are advertised as green based on carbon offsetting add-ons, to support projects that are verified through regulated third-party standards. There are many organisations and charities that claim to offset emissions via tree planting, or carbon capture schemes, but Poynter says only those audited and verified through the United Nations Certified Emissions Reduction scheme, the Verra Standard, or the Gold Standard ensure the emissions offset are "accurate, and transparent."
He adds: "Using verified projects through these standards also ensures the projects have secondary benefits in the developing world, helping provide education, employment, clean water, energy and a positive impact on the local wildlife and ecology.”
5. Borrow to improve the impact of your business
If you’re a business owner who’s core products and services enables others to operate in a more sustainable way, and if you’re motivated to improve the environmental and social standards of your organisation, supply chain, or do more to contribute towards tackling climate change, you may be able to borrow more money, at preferential rates, to support your ambitions. Several banks now advertise “greener loans”, including Virgin Money’s Sustainability-Linked Loans, which offers 0% arrangement fee for sustainable businesses, borrowing over £250,000 providing you meet its assessment.
The assessment includes a questionnaire, created with the help of the Future-Fit Foundation, to measure sustainability and show how you can make further progress, with an objective assessment of how you're doing so far. Virgin Money has committed to making 5 per cent of all business loans to firms driving environmental and social change by September 2022.
Want to find out how ready your business is for a sustainable future? Download the Sustainable Business Coach from the Apple or Google Play stores today.