Ethical money
Ethical money is probably important to you if you’re reading this, because you will care about the way your money is invested, otherwise you could be supporting oppressive governments, arms sales, deforestation and all sorts of other practices that aren’t ethical or environmentally friendly.
The term ‘ethical’ most commonly refers to Socially Responsible Investment, the practice of taking into account social, environmental and ethical factors across a wide range of personal finance products – From savings to credit cards, to pensions, insurance, mortgages and investments.
Ethical consumerism is big business – according to the Co-operative Bank’s 2006 Ethical Consumerism report, ethical consumerism was worth £29.3 billion in 2005 with Ethical Finance alone worth £11.6 billion. Financial Institutions therefore have a lot of power. Pension Funds and Insurance companies for example, control around 70% of the UK stock market, so you really can help make a difference by choosing how your money is invested.
How does ethical money work?
There are three main approaches to ethical investing:
- Negative screening:
This ethical approach excludes companies or industries involved in practices deemed to be harmful to people, the environment or animals e.g. arms, gambling, genetic engineering, intensive farming, nuclear power, oil, deforestation, chemical pollution etc. - Positive screening:
This involves investing in companies that fulfil a certain number of positive ethical criteria e.g. recycling waste, clear environmental policies, clear codes of conduct on pay and labour conditions, disclosure of payments to foreign governments and political parties etc. - Cause-based:
This involves investing directly in projects, companies or industries deemed to be ethical, and beneficial to both society and the environment e.g. charities, organic farms, renewable energy etc.
Which approach is best?
This is really open to debate and depends upon whether you’re an idealist or a pragmatist.
- Idealists argue that it’s ethically wrong to profit from companies or industries that cause harm to people and the environment.
- Pragmatists argue that working with companies is far more likely to drive positive ethical change.
If certain companies or industries are excluded completely, then there is little to encourage them to become more ethical and environmentally friendly. Supporters of positive screening argue that engagement helps change a company’s ethical practices by demonstrating the financial case, as well as the moral case to change.
Where do I start?
It can sometimes be a bit daunting to know how to be more ethical with your money, so we’ve put together a simple 7-step guide that will help your money make a difference by being more ethical:
- Switch to an Ethical credit card – there’s a wide range of ethical credit cards that not only donate money to your chosen cause every time you spend on it, but that also offer competitive rates. With some Banks now introducing yet more credit card fees, it’s a good time to switch to a more ethical credit card.
- Open an Ethical savings account– an ethical savings account is a great way to save for a rainy day whilst directly supporting a worthy cause like renewable energy for example.
- Invest in an Ethical ISA – Ethical investments are a great way to build up a tax-free nest egg for the future whilst ensuring that your money is invested ethically. The Observer recently reported that 70 per cent of the ethical funds in the UK All Companies sector were in the top quarter of the performance tables in 2006, so Ethical investing no longer means you have to accept a lower return on your investment.
- Green car insurance–Whilst it’s always sensible to shop around for cheaper car insurance, why not consider a green insurance policy at the same time? Some green car insurance policies can be more expensive than the best deal for the typical driver, but you could always get a quote from Climatesure - an online insurance broker that gives a percentage of the insurance premium to Climate Care, which operates Carbon offsetting projects. Climatesure states that the offsetting would not cost customers more, because the panel of insurers they use offer better deals on policies than are available elsewhere.
- Switch to Ethical Banking – switching bank accounts could actually save you money by finding an account more suitable for your financial needs, as well as your ethical viewpoint. With some Banks now introducing monthly fees for current accounts, there’s never been a better time to switch - so why not take a look at our Ethical Banking Best Buys to help you start.
- Ethical pensions– the BBC recently reported that 12m people aren’t saving enough for their retirement, so now’s a good time to sort out a responsible retirement. You can take out an ethical stakeholder pension or simply change your fund selection to include an Ethical fund. So why not check out our Ethical Pensions before you speak to your pension scheme provider or IFA.
- Get a better Ethical mortgage deal – Getting a mortgage is the biggest financial decision most of us make in a lifetime, so it pays to research and find the best deal to suit your needs. If you’re not locked into a fixed rate deal you might find that switching to a more competitive mortgage deal can save you money.
There are two main considerations with Ethical mortgages – the ethical credentials of the lender, or whether it’s best to favour a mutual building society since they are unlikely to do anything with your money other than lend it out as mortgages. Mutual Building Societies offer competitive mortgage deals so it needn’t be a case of paying extra to be ethical with your mortgage.
Read our guide to ethical borrowing to understand
Don’t forget to check out our Mortgage best buys and Ethical Mortgages for help.
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