What is the best thing you can do with your money to help save the planet? Studies suggest that the most powerful tool you have sits in the value of your savings. The cumulative impact of your money over decades can be extraordinary.
A pension may sound boring, but over the course of your life, your pension is likely to become your biggest financial asset – government statistics say it accounts for 42% of wealth in the UK.
What does this have to do with climate? A pension is usually invested in your name in a tiny chunk of companies traded on the stock exchange – including companies that produce fossil fuels.
According to a study conducted by the insurance company Aviva for the UK Make my money interesting The campaign, an average UK pension saver could cut carbon emissions by 19 tonnes a year by switching to a sustainable fund – 21 times more than the combined carbon savings of using renewable energy, vegetarian use and not flying.
Developing good money habits early can be one of the most powerful levers you have to make an impact, whether by engaging with the companies you invest in to improve their climate policies or by completely avoiding high polluting companies.
If you have a bank account, start by checking the bank’s climate policy as it will use your money to fund other activities. Some banks avoid fossil fuels and channel your savings into projects that have a positive social impact.
Investing gives you more control over how you manage your money. First, talk to your parents because they may be investing for you, says Becky O’Connor, co-founder of the personal finance site Good with Money and director of retirement and savings at the Interactive Investor investment platform.
The UK government has paid £ 250 into a child trust fund for anyone born between 2002 and 2011, with parents frequently filling out the account. Solvent (Isa) – Offering more flexibility.
At age 18, you can take control of all your financial accounts, and may even consider a Lifetime Isa program, in which the government will increase your contributions by 25 percent – but different conditions apply.
According to UK Government vehicle registration rules, you will most likely start paying into your pension when you are 22 and full time. It’s invested for you, but most private sector pension plans have default funds that invest between industries, with an ethical strategy option.
If you live in the US, your parents may have set up a UGMA account for you under the Uniform Gifts for Minors Act, which will be transferred to you when you reach the age of 18 or 21 (this varies by country). When you get your first job, you may consider paying Roth (IRA).
Nilay Gandhi, CFP, senior financial advisor at Vanguard Personal Advisor Services, says Roth IRA accounts are popular for those early in their careers.
As FT journalist Alice Ross points out, b Investment to save the planetInvestment decisions are personal and depend on when you think you will need the money and how much risk you are willing to take.
You will probably want to start with mutual funds – consolidated investment tools managed by professionals on your behalf, which contain stocks (shares of a company), or bonds (loans to the company), or other assets. Some funds have a manager who will make investment decisions for you, called an investment. Active “, while others simply track assets in a selected area – known as a” passive “investment.
“ESG“, Which represents” environmental, social and governance “, has become a catchphrase for responsible investment through a fund, but interpretations vary.
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Felix Milton, a certified financial planner at Philip J Milton and Company, says there are four main fund options for climate-conscious investors: those that do not include certain industries; Those who tend to be “good in class” according to ESG indices; Those who have an activist approach to drive improvements; And impact funds, which invest directly for positive change.
There are apps – known as Robo consultants – that will choose funds for you. Holly McKay, founder and CEO of consumer website Boring Money, suggests looking at Clim8, an app with a mission to support environmental innovation that will run a climate-friendly portfolio for you with a minimum deposit of £ 25. She also says the Big Exchange investment platform is worth considering, as it helps people Save in a way that is tailored to their values.
But beware of “Green rinse“: Funds that brand themselves as ‘ESG’ without investing sustainably. And beware of any fund that claims its ESG approach will yield better returns than its regular counterparts.
While many performed well during the plague, ESG funds struggled this year as energy prices soared and the prospect of higher interest rates made investors less willing to pay high valuations for “growth” stocks, which are widely held by many ESG funds.
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