Green investment tips: How to make sure your savings leave an ethical legacy

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NS&I’s Green Savings Bonds are expected to launch by the end of 2021 and the Government-backed savings provider claims its three-year fixed-term bonds will “make the world greener, cleaner and more sustainable”. The bonds will be available online and allow savers to invest between £100 and £100,000. 

Savers will not be able to access their cash until the end of the bond’s term, but they will be guaranteed a fixed rate of annual interest, which has not yet been set, for three years.

The £15bn intended to be raised will go to HM Treasury and then allocated to chosen green projects.

Gemma Woodward, director of responsible investment at Quilter Cheviot, says advance interest in NS&I’s bonds showed how much demand there was for ethical savings.

She says: “Green bonds also serve the dual purpose of allowing people to buy into the green agenda while also providing an outlet for the ‘accidental’ savings built up during the lockdowns.”

Green gilt or green bond?

The institutional version of NS&I’s Green Bond, the Green Gilt, raised £10bn in just one day earlier this month. The UK Government is anxious to prove its green credentials before it hosts the United Nations COP26 climate conference in Glasgow in November.

There is also the matter of meeting its own target, now law, which requires the UK to reduce its greenhouse gas emissions to net zero by 2050.

Can green be profitable? 

The Government faces a delicate balancing act when deciding on the rate of return the NS&I bonds should offer. Set the rate too low and demand will be limited. Set the rate too high and the products offer poor value for money for the taxpayer when compared with conventional gilts.

Green saving or greenwash?

Professor Kevin Haines, director of Sustainable Capital, a UK-based company which helps market green and sustainable bonds, says savers need to be wary of any investment calling itself green or ethical.

Professor Haines explains how any issuer wishing to bring green, social or sustainable bonds must comply with the International Capital Market Association (ICMA) principles and they must obtain a second-party opinion. 

But these opinions can only be obtained from an ICMA-approved list of ESG/specialist ratings agencies – so-called ‘external reviewers’. Professor Haines believes there are weaknesses with this process and there is still a long way to go before the ICMA route is the preferred route to market for many issuers. 

He says: “The ICMA uses language, concepts and standards that are bespoke and, therefore, different from others; potentially causing confusion and exposing itself to the potential for greenwashing.”

Liza Chong, chief executive of The Index Project, says savers should consider investments beyond simply bank accounts or bonds. 

She urges savers to do their research and invest directly into the people who are finding creative solutions to solving problems such as the climate crisis.

“In taking a more creative approach to investment opportunities, investors hold the power to bring sustainable, ethical and equitable ideas to fruition.

“Their financial and strategic support can be the key to unlocking a more inclusive future for us all.”

Ethical places to stash your cash

If you want to save, rather than invest, ethically then you may be best off putting your cash with a building society or bank which is run according to ethical or green principles.

There are several building societies that are exclusively ethical. All have instant access, regular savings accounts as well as individual savings accounts.  Don’t expect your money to earn too much interest. Rates remain low, but you can console yourself that your money will do some good. 

Ecology Building Society: Offers a regular and easy account, a 90-day account and an Isa. The regular saver account pays 0.80 per cent a year and you can save between £25 to £250 a month. It also has an easy access account offers a competitive rate of 0.10 per cent, while the Isa is 0.30 per cent and the 90-day notice pays 0.25 per cent to 0.55 per cent.

Triodos: Has an everyday saver up to 0.15 per cent, a fixed-rate bond at 0.4 per cent although you have to save a minimum of £500 and an online cash Isa paying 0.2 per cent.

Charity Bank: Charity Bank has a 33-day notice savings account paying 0.35 per cent, and an ethical one-year fixed-rate account paying 0.47 per cent.

Go mutual: You could choose to invest in a building society, where profits go back to members, rather than shareholders. The Building Societies Association lists more than 50 members on its website (including Ecology). Many operate locally and often support local businesses and charities.

How to be an ethical saver without trying

Your current account

This often gets overlooked, says Gemma Woodward at Quilter Cheviot: “Your money doesn’t just sit in a vault gathering dust. The bank will use your deposits to provide loans to businesses in the real economy. If you want to ensure your money is doing no harm then consider switching current accounts to a bank with a transparent investment policy. You can then judge if the bank’s values match yours.”

Your pension

Woodward points out that we often forget how powerful our pension can be. “People often fail to make the link between their pension and the planet,” she says. “Often people don’t even know that their pension is invested in the first place. Most pension providers now offer ethical or responsible fund choices so it’s worth digging out your login details, going online and seeing what change you could make.”

Borrowing

Credit unions often get overlooked but they do offer competitive rates and, like local building societies, you can help local causes. They are also covered by the Financial Services Compensation Scheme, which protects savings of up to £85,000.