How to make ethical choices with your money

From bank accounts to investments, we explain how to be a financial eco-warrior

From recycling to buying eco-friendly products, many of us are making decisions in our daily lives that align with our values and help make a better world.

Making greener or ethical financial decisions doesn’t require you to sacrifice your financial goals – you just need to consider alternative companies and financial products. So here’s the lowdown on everything from saving and investing ethically to where to get a ‘greener’ mortgage.

Pick an ethical bank

Ethical banks invest customers’ money in a way that has a positive impact on society, the local community and the environment.

For example, one bank may decide to invest in green energy while another bank may choose to avoid investing in industries and products such as tobacco and alcohol.

Ethical banks are also likely to value transparency and to share information about their practices and their impact with customers.

In contrast, banks that do not have this as their focus may support companies that manufacture arms or those with poor human rights records.

There are several banks with ethical credentials that offer current accounts, savings accounts and mortgages.

Building societies

Building societies, such as Nationwide, are considered by some to be more ethical than banks. This is because, since the Building Societies Act 1986, at least 75% of a building society’s assets must be held in residential mortgages.

As a result, a lower proportion of their funds is likely to be invested in industries that some may consider unethical.

High street banks

There are a small number of high street banks that offer greener products and services.

The Co-operative was the UK’s first high street bank with a policy of not investing in companies deemed unethical by its customers.

Its ethical policy, which dates back to 1992, means that it will not provide banking services to organisations that conflict with its customers’

views on anything from human rights and the environment to those involved in irresponsible gambling or payday lending.

This was soon followed by Triodos Bank, which has been offering ethical savings accounts, current accounts and investments in the UK since 1995. 

“I don’t want my money to fund the fossil fuel industry”

Hilary Jane, 63, who grew up in South Gloucestershire, has always been concerned about climate change.

“We used to have skylarks and cuckoos round here and they’ve all disappeared in my lifetime. I knew I had to do something, but it can feel despairing at times,” she says. Hilary has always viewed investing as a powerful way to make positive change. She opened her first investment account with Triodos Bank when it first opened in the UK more than 20 years ago.

She says: “I invest with Triodos because it aligns with my ethics.

“The big banks are pumping more and more money into fossil fuels despite the Paris Agreement and I don’t want my money to go toward funding the fossil fuel industry,” she adds.

Challenger banks

So-called challenger banks, such as Metro Bank, Monzo and Starling Bank, are considered by some to be more ethical owing to their commitment to maintaining total transparency with their customers.

Sharia-compliant banks

Sharia-compliant banks (which offer Islamic financial products that are fully compliant with Sharia law), such as Al Rayan Bank and Gatehouse Bank, invest customers’ money in line with Islamic principles. As a result, they will never invest in industries connected with alcohol, tobacco, arms, pornography or gambling.

Opt for ethical investments

Over the past decade, investors have become increasingly aware of the importance of sustainability.

Environment, social and governance investing, or ESG, is growing in popularity as more investors choose to put their money into industries and companies that align with their values.

Assets under management in ESG products were worth £35 billion in the first three quarters of 2019 – up from £17 billion in 2014, according to data from Morningstar.

And in 2019 alone, people invested an average of £124 million a week into ESG funds in the UK.

There is no one-size-fits-all when it comes to ethical investing because everyone has different values and priorities. You will need to do your research to check that the funds you are interested in own companies you are happy to invest in.

Furthermore, just because a fund has ESG or ‘ethical’ or SRI (socially-responsible investing) in its title, it does not automatically mean it will abide by certain credentials. The use of these terms is not regulated and, although the investment industry is working on it, there is no fixed way that they are defined.

By the same token, just because a fund is not badged as ‘ethical’ does not mean it will not fit your own criteria of companies you are happy to invest in.

Most investment platforms offer ESG options. Some merely make them available, while others offer tools to help investors sort through them. For example, interactive investor (Moneywise’s parent company) has an extensive list of more than 140 ethical investment options.

It recently launched the ii ACE 30 – the UK’s first rated list of ethical investments, which aims to help investors identify high-quality

ESG funds, investment trusts and exchange traded funds. It also has an ethical model growth portfolio.

Other platforms are also keen to promote ethical funds on their platforms. Bestinvest, for instance, has a collection of ethical funds that it rates highly in its online investment guide.

Meanwhile, AJ Bell allows investors to sort through its ‘favourite funds’ list to find top-ranked ethical funds.

Choose an ethical mortgage

Some building societies and specialist banks offer residential mortgages that are invested ethically, while others specialise in lending to environmentally friendly properties and projects.

More recently, some providers have started offering ‘green mortgages’ as an option too.

Green mortgages offer preferential interest rates for homes that are energy efficient. Home buyers wishing to qualify for one must either demonstrate that the property they are buying meets certain energy efficiency standards, or commit to making it more energy efficient.

Invest your pension in ethical options

When you enrol into a workplace defined contribution pension or start a personal pension, your money is generally invested automatically into a default fund. However, you can usually request to select which funds your money goes into instead. If you wish to invest in ethical funds or those that align with your own values, contact your pension provider to ask what it offers and how to switch. 

If your workplace pension provider does not offer an ethical option, ask why this is – and you could consider raising it with your employer as well.

When investing for retirement, it is important to make sure that you are taking the appropriate amount of risk and not overpaying on fees.

Take too much or too little risk and you may not have the level of savings you need to support the later-life lifestyle you aspire to.

Pay too much in fees and your nest egg will be needlessly eroded over time. These considerations remain relevant when you choose ethical funds.

“I want to stay away from nasty sectors, like tobacco and weapons”

More banks and building societies are offering ethical savings accounts in the UK.

Russell Warfield, 30, a senior campaigns officer for Greenpeace, wanted to join a bank that prioritised transparency and being accountable to its customers. Russell has an online Cash Isa with Triodos, which he opened in 2012.

“I find it really important to know where my money goes. It is the only way to make the financial sector more transparent and accountable for what it does with our savings,” he says.

For Russell, ensuring that the returns made on his savings were not harming society was vital too.

He says: “I want the interest on my savings not to be at the expense of society. I want to stay away from fossil fuels and nasty sectors like tobacco and weapons.”

Make ethical choices

Making ethical financial choices and identifying which financial institutions and products best align with what you believe in requires some research. Some key points to consider include:

What are your ethical values? Before starting your search for an ethical bank or institution, take some time to work out what your priorities are. Having a clear idea of the causes you would like to support or industries you want to avoid will help you filter through the multitude of providers.

Does the financial institution have a consistent ethical past? Once you have identified providers you are interested in, dig deeper. An internet search is likely to reveal whether its ethical credentials have been consistent. Look out for instances of poor practice such as mis-selling products, fraudulent activity and concerning behaviour relating to human rights and climate change.

Who owns it? Banks often belong to larger financial groups, and these could have links to industries or companies that don’t reflect your ethical beliefs.   

“I don’t want my money to fund the fossil fuel industry

Katherine Horsham, a 30-year-old graphic designer based in London, began making ethical choices with her money 12 years ago.

 “I needed to contribute in some positive way to change the system and it was during the recession, which made me think about money and the whole system,” says Katherine.

She adds: “I try to make good choices, whether it’s the food I eat or where I go on holiday – I try not to fly – and I also do a lot of volunteering. It would be really bizarre for me not to consider my values in the context of where my money goes.”

Katherine first decided to open a current account with Triodos.

“I wanted to put my money with a bank I can trust that will do good things with it,” she says.

The account has a £3 monthly fee, which she felt was explained clearly by Triodos, and she has no issue paying it.

“I would much rather pay £3 a month to know that my bank isn’t exploiting other people in order for me to have an account,” she says.

“The most fundamental thing is the transparency, which it is using as an opportunity to put the money toward good stuff and good people.”