Saving money the ethical and environmentally friendly way
WOULD you like to save in an ethical and environmentally friendly way? If so, read on.
Norway's state and private pension funds are taking a massive financial laxative – by cleaning out unethical investments from their portfolios.
The Government Pension Fund Global has just been given government approval to drop more than $13 billion of investments in fossil fuel companies, including eight coal companies and 150 oil producers.
Meanwhile on the workplace pensions side, Norway's largest pension fund KLP is getting rid of its $320m stake in companies involved in alcohol or gambling – bad news for the household names where they hold large stakes: Budweiser, Heineken, spirits manufacturer Diageo, and Paddy Power Betfair.
Meanwhile just around the corner in Sweden, not to be outdone, Swedish AP funds, which manage roughly $155bn of state pension assets, are looking hard at their investments in Vale, a Brazilian mining company. The funds' ethical council criticised Vale in strong terms over a dam disaster on January 25 which left nearly 300 people dead or missing.
But you don't have to go to Scandinavia, to get some environmental pizzazz into your financial world. You can choose to use some of the UK's ethical investments to save for your pension. Here's how they work.
Ethical funds select the companies where they invest via two processes: ‘positive screening' and ‘negative screening'.
Positive screening uses strict criteria to find companies that are strongly pro-environment: manufacturers of environmental products, and those who encourage biodiversity or promote renewable energies. Some funds also require that companies do their bit for their workforce and the local environment, wherever they are in the world – by good treatment of employees, providing healthcare, even by building schools and hospitals.
Negative screening is the flip side of the coin. Fund managers seek to exclude companies involved in various ‘unethical' industrial sectors, such as tobacco, alcohol, meat, nuclear power, defence, or intensive farming. Unethical activities that can be avoided include deforestation, exploitation of workers, or animal testing.
There were two particular issues that made investors here in Northern Ireland think more about their money and the environment. The issue came to a head a while back with a particularly tragic environmental disaster that happened to BP. Do the words ‘Deepwater Horizon' ring any bells?
On April 10 2010, a massive explosion at BP's Deepwater Horizon oil well in the Gulf of Mexico left 11 dead and 17 injured. It flooded the area with an estimated 4.9 million barrels of oil over 87 days, before it was finally declared sealed the following September. The oil spread over 68,000 square miles, devastating marine and bird life and ruining beaches from Louisiana down to Florida. Between massive fines and bankrolling a cleanup operation, BP's executives have been running about with holes in their socks ever since.
Apart from concerns about oil and fossil fuels, there's another issue, one that's very current in Northern Ireland at the moment. How do you feel about fracking? Again, you can vote with your cash. Some ethical funds are responding to demands of half of consumers not to have their money anywhere near the fracking industry.
Ethical funds can give you a perfect chance to be active, in environmental terms. The funds where you invest are buying shares in the companies they choose, which gives them voting rights to further influence the environmental policies of those companies.
If you would like to ‘green up' your retirement planning or Investment Isa savings with some ethical content, one more word of wisdom in relation to choosing the right funds.
Ethical funds are ranged on a sliding scale from light green to dark green, showing how far they go with their environmental commitment.
At the light green end of things, some funds which call themselves ethical nonetheless do invest in oil and gas, believing these to be essential to produce a competitive return. However, they claim to select those energy companies which have an environmental policy in place, and are making some gestures towards respecting the environment.
The phrase ‘least worst' has been coined to describe the oil and gas companies which qualify as the most environmentally friendly in their sector. Down at the dark green end are truly ethical companies such as those mentioned above, providing training to develop their workers, helping to provide clean water, good levels of living accommodation, and affordable healthcare. These are measures taken in addition to the ethical nature of the products they make, treatment of their workforce, and their inhouse manufacturing practices.
Do you fancy getting a little more Norwegian with your savings and pension planning? We can plan and structure a personalised ethical strategy to take your environmental concerns into account.
:: Michael Kennedy and Shaun Doherty are independent financial advisers and pensions specialists, and can be contacted on 028 71886005. Further information is on the Facebook page 'Kennedy Independent Financial Advice Ltd' and the website www.mkennedyfinancial.com