ARE you concerned about environmental or social issues, climate change, fair trade, workers’ welfare, poverty, lack of public health facilities, lack of proper medical care, lack of clean water, and saving lives?
Are you in favour of lowering Co2 emissions, reducing use of plastics, and treating workers fairly and companies that pay their corporate taxes?
Then let us tell you about the secret power that you have, in your pension.
Your pension can be a great way to make a statement about your values. You can literally decide how your money is working for the good of others, by dictating where and how it is invested.
This week, our phrase for the day is ‘ethical funds’. A fund is simply a large pool of money – which can include your pension savings – that invests by buying company shares. Most funds are not ethical, but many are.
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.
With negative screening, fund managers decide which companies to avoid. They 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.
Ethical investments mean you have zero exposure to various sectors, which can be fortunate when unexpected events result in a downturn.
This year, for instance, we saw oil and gas companies get badly burned as most industries (the major consumers of oil and gas) were temporarily shut down in the coronavirus lockdown. Sales of vehicle fuel also slumped as we severely curtailed our use of cars and vehicles.
Ethical investors, however, were sheltered from the resulting fall in oil and gas share prices. However, this is not the first time investing ethically has offered protection from major disasters in the oil sector.
Do you remember the Deepwater Horizon oil rig explosion in April 2010?
Eleven people lost their lives as an estimated 4.9m barrels worth of BP oil spilled into the Gulf of Mexico.
The slick was a black mark on BP’s copybook that was visible from space, and the value of its shares lost half their value as their share price sank to the bottom of the ocean. Many pension fund managers, heavily invested in BP, were most upset.
Most upset of all, of course, were ethical investors, watching TV coverage of the oil slick, which ran for 400 miles from Florida to Alabama to Mississippi to Louisiana. Financially, though, they were unscathed - their ethical funds, which did not invest in oil, sheltered them from the financial losses endured by those invested in BP.
Ethical investing gives you a lot more than a clear conscience – it protects you from oil spills!
People often associate ethical choices with developing countries, where labour laws and industrial practices may not be as strict as in the UK. However, if you like to do good closer to home, there are now ethical options that address issues that are relevant right here in Northern Ireland.
There are funds that won’t go near any company involved in fracking, for example. And it’s not just individual funds. There are now whole pension schemes that actively support and invest in social issues, some of them right here in the UK.
One example is social housing. You can actually arrange your savings so that your pension is helping with social issues right in your own back yard - helping the very same people you see when you head down to the shops, and doing good by offering social rents to the most vulnerable.
Within these walls, nothing makes us happier than a slew of juicy figures, and here are some: the 5 million social homes in the UK make up 17 per cent of all homes, and another 100,000 social homes are needed each year.
Over half of those households are home to a person with a disability, and a high proportion of lone parents also live in social homes.
Newer social homes are more energy-efficient than private homes, so that your money could be helping to reduce the nation’s carbon footprint.
Pension schemes love to invest in social housing. The housing associations behind them are effectively regulated, making social housing a relatively safe investment, contributing to a key area of the UK economy.
Would you like to put an ethical roof over the head of your pension savings?
Michael Kennedy and Shaun Doherty are independent financial advisers and pensions specialists, and can be contacted on 028 71886005. Further information on Facebook at Kennedy Independent Financial Advice or at www.mkennedyfinancial.com