On Saturday 22nd April, it’s Earth Day 2017. Originating in the US in 1970 to raise awareness of environmental issues, today it’s the world’s largest civic observance with one billion people participating in 200 countries.
In the run-up, the UK press has the obligatory articles on how individuals can reduce their environmental footprint. Helpful in their own way, these checklists remind us to turn down the thermostat, use public transport and not to over-fill the kettle. Yet they neglect to mention one large area of our lives: personal finances. While many of us are happy to take social and environmental issues into account in our purchasing decisions – think Fairtrade or low carbon vehicles – this is far from mainstream practice when considering investment products.
Why is this? Partly because too many individuals still regard their pension or other investments as a Pandora’s box. The recent government ad campaign “You know your latte from your flat white… but do you know your pension options?” will have struck a chord with many. And although the industry has done much to explain the investment process to the uninitiated – this Aviva clip, for example, is great – there’s clearly much more work to do.
Another reason is the lack of public awareness around sustainable finance: take a look at the findings from this YouGov poll last year. To tackle this, there’s talk of a kitemark for sustainable investment products. This is promising in principle, but a long way off from being a reality.
In the here and now, and with Earth Day this weekend, there’s one easy thing we can all do: ask questions. We can and should grill our pensions providers and fund managers on environmental risks and impacts, with some very simple questions:
Which companies does this fund invest in?
Does it employ any negative and/or positive screening?
How are environmental risks factored into investment decision-making?
What steps have been taken to reduce fossil fuel exposure?
How do you use your influence as investors to encourage companies to reduce their environmental impacts?
Armed with the answers, individuals can decide on the most appropriate course of action, be that switching to a more environmentally-astute fund, a screened fund or staying with the existing provider and exerting pressure along the investment chain. It’s a cliché, but knowledge is power.
We’ve seen institutional investors, universities in particular, scrutinise the environmental footprint of their investments and take action accordingly. It’s time for investment managers to see retail clients acting in a similar fashion. There’s a lingering misconception that by focusing on responsible investment there will be a cost to performance. That doesn’t have to be the case, as discussed in a recent article covered in Money Marketing magazine, where our colleague John Ditchfield argues that positive social and environmental management often goes hand-in-hand with performance.
We’ve seen the effectiveness of consumer action in other sectors: what’s stopping us from doing the same in financial services? On this day dedicated to environmental and climate literacy, we can all do our bit to find out more about the impacts of the investments we hold.
Ita McMahon and Matt Coppin