The third assignment in Terra.do's Climate Change: Learning for Action course was to choose one of five tracks — Here to Learn, Here to Create, Here for a Job, Here to Act or Here to Lead — and complete an exercise to further our progress towards our climate goals in that area.
I chose Here to Act. I was required to "Consider ways to make your lifestyle more sustainable, and discuss these with others." Various suggestions were offered, for example: explore options to reduce the environmental impact of your home, change your primary mode of transport etc. The one that peaked my interest was:
Find out where all of your financial assets are invested. Are your savings funding fossil fuel expansion? Is your pension supporting new oil pipelines? Explore your options for moving your investments into 'sustainable' funds.
This is my submission:
I chose the Here to Act track because there was a suggested option - researching and investing your money in sustainable investments - which I have been meaning to do for some time.
In terms of Here to Act I feel I already do okay… the environment and climate change have been at the forefront of my mind for quite some time:
I've been an Ovo 100% renewable energy customer ever since it was available
I bought solar panels for my house back in 2011
I eat mostly vegan (~90% of what I eat and drink is plant based)
I commute by foot (walking, running) or by bike most of the time. As a family we've cut back to one car and I only really use it for family trips
There's a lot I already do, but I'm by no means perfect. I have bigger dreams, including building and/or living in a passive home and having zero or positive impact on the environment in which I live.
Assessing my investments in terms of environmental impact is something I never get around to, and so Assignment 3: Laying your tracks, seemed the perfect opportunity. In the face of my growing climate change knowledge, I no longer want to be a passive investor in companies that harm the planet and propel us towards the devastating consequences of climate change.
I hold a self-invested personal pension (SIPP) and an Individual Savings Account (ISA) with Vanguard in the UK. I like to keep things simple, so have consolidated all other investments and pensions (apart from a small holding of Monzo shares) into these two pots. Within these accounts I distribute funds across a number of holdings:
FTSE Developed Europe ex-U.K. Equity Index Fund - Accumulation (13%)
FTSE U.K. All Share Index Unit Trust - Accumulation (25%)
Japan Stock Index Fund - Accumulation (7%)
Pacific ex-Japan Stock Index Fund - Accumulation (3%)
U.S. Equity Index Fund - Accumulation (45%)
Emerging Markets Stock Index Fund - Accumulation (7%)
I dug into each fund and was hardly suprised (they are, after all, index funds) to find a lot of companies that I'd rather not have my money invested in, e.g. Shell, BP, Exxon Mobil., Barclays*… the list goes on.
I asterisk* Barclays above because during my research I discovered, and was shocked by, how much money banks are investing in fossil fuel projects. Barclays happens to be the UK's worst offender. Extinction Rebellion's How to stop funding fossil fuels by moving to an ethical bank and Banking on Climate Chaos were great resources to shed light on the issue.
Between January and November 2021 Barclays alone financed £5.6bn in new fossil fuel projects, making them the leading funder of the Climate Crisis in the UK.
I've learned a lot from the Terra.do course, but one of the most important lessons is that we have to rapidly shift away from fossil fuels. The sooner the better. With this in mind I can no longer knowingly support fossil fuel (or other climate change inducing) companies with my investments. Inaction is action. Leaving my money invested in these types of organisations, even if indirectly, is not acceptable, and so I must divest. The question is (was), where?
After much research through sites Good With Money, Make My Money Matter, Go Invest Green (and others) I came to the conclusion that the most straightforward option (for now), and something I can do immediately, is to transfer all of my funds into one of Vanguard's Environment, Social and Corporate Governance (ESG) funds.
Vanguard's ESG funds exclude companies involved in non-renewable energy (nuclear power, fossil fuels), weapons (civilian, controversial and military), and “vice” products including alcohol, tobacco, gambling and adult entertainment. Vanguard also states that companies from any sector that fail to meet the United Nations Global Compact Principles on labour rights, human rights, the environment and anti-corruption are also excluded.
To stop investing (divesting) in companies doing harm is part of the puzzle, but this isn't the complete answer. Critics of ESG funds rightly point out that these type of funds aren't actively supporting companies at the forefront of change. They apply a 'negative filter' to screen out anything that is 'bad' but they are not actively supporting companies doing 'good'.
So there's a need to take a multi-pronged approach when it comes to investing sustainably:
Divest from companies doing harm.
Invest directly in companies doing good (impact investing).
I'm not typically and active investor. I know based on previous study that index funds are about as wise an investment choice as one can make. But I also want to invest in our future, that is, the future of our planet and all the species that share it. If we continue making investment decisions with a purely financial, short-term mindset we'll never make the inroads into climate change. This applies on individual, familial, local, regional, national and international levels. We have to take a more balanced approach.
The good news is that socially responsible investing can be as, or more, profitable than your typical earth-trashing variety. Through my own comparisons, and reading numerous articles assessing performance of ESG/sustainable funds vs traditional funds, it became clear the former performs on par or better that the latter. And I think this will only improve in the coming decades as we see more of a swing away from fossil fuels and towards sustainability.
I also learned there is a need to use our money more directly in the fight against climate change. Think of investing as a kind of indirect show of intent to put our money where our values lie. Our spending choices send a more direct message. I love the insight by Mr Money Moustache from this Socially Responsible Investing piece:
…your spending dollars will probably have a much bigger impact than your investment dollars. This is because you are sending a direct message to the world rather than an indirect one.
When you buy a product that's bad for the planet, for example a petrol-guzzling car, a tank of gas, a steak or an airline ticket, you are directly telling those companies that consumers want more of these products, so they will produce more.
I shared my findings with my my parents, one of my best friends, and a Salamanders fellow. The responses I got from parents and my friend were more positive than I expected. My parents are retired and have their money in an Australian retirement/pension fun. They indicated their desire to research sustainable investments, saying "Well, we (baby boomers) are responsible for the climate issues." They were curious about my research and will now likely undertake their own. I had a similar response from my friend, though with the demands of family life he is less likely to reevaluate soon. Finally, my fellow Terra Fellow was really interested and said reassessing his investments was something he's been meaning to get around to. Hew will likely use our discussion as a starting point to shift into more sustainable investing.
Some key takeaways from my research and subsequent action:
It's not enough simply stop investing in companies responsible for a large chunk of climate change; we have to invest in solutions to the problem.
Investing sustainably can be as or even more profitable than the traditional approach.
We need to employ lots of different solutions. Divesting, impact investing, and putting our spending dollars towards products and services trying to solve the problem.
However I know there's a lot more to this and that I'm only just scratching the surface.
As a direct result of what I've learned through Terra, and my research for this assignment, I am moving all the money in my pension and ISAs into Vanguard ESG funds. I will continue to research impact investing, and will apportion a (significant) percentage of my future investments directly into companies that are fighting the fight.
These are a selection of the best resources I found during my research.
Your thoughts? I'd love to hear them. Please get in contact.