Article Bringing your investments and personal values together

This summer’s heatwaves have brought home to many that climate change isn’t some distant threat, but a crisis of here and now. What we do collectively this decade – including how we invest – could mark the difference between starkly different futures. And, of course, climate change isn’t the only problem we’re facing. We also urgently need to tackle challenges such as biodiversity loss, plastic pollution and the deteriorating health of our oceans. Sustainability isn’t a ‘nice to do’ – it’s a necessity.

Putting sustainability at the heart of your decisions

Our everyday choices are guided by our values and beliefs, whether consciously or not. For example, we’re likely to think twice about buying clothes from a fast fashion retailer that has been found to exploit their workforce. We rarely know the full story behind the products we buy, but when unethical and unsustainable practices come to light – and they increasingly do – our moral compass kicks in.

There are many terms floating around but responsible investing, or you may know it as sustainable or ESG (environmental, social and governance) investing, is about taking this ‘full story’ into account. It’s essentially asking a wider range of questions about how wisely a company is managed and whether it is acting in harmony with the kind of world we want to live in.

This may just seem like common sense, but it wasn’t long ago that ESG factors tended to be overlooked compared with financial information, such as a company’s profits and cash flows. But fund managers, regulators and investors are now aware that these factors are just as important in assessing the likely future health of a company as their current balance sheet.

Different ways you can make an impact – from recycling to investments

Our research shows that a large proportion of our customers are concerned about environmental challenges, such as climate change, and are increasingly taking actions in their daily lives – including recycling (94%), avoiding single-use plastics (60%), buying local produce (48%) and eating less meat (39%). However, a much smaller percentage (17%) think of their savings and investments as a way to support a more sustainable world. ¹ So why the disconnect?

A significant percentage of respondents (49%) in our research want more information to be able to make responsible investment choices. Many also want to see the impact or benefits more clearly communicated (44%), as well as clearer labelling of funds (39%) and greater choice (37%).¹

Aligning your personal values with your investments

Your pension is not just a pot of money you and your employer add to over time. Through our retirement savings, we’re all likely to be shareholders in (and lenders to) companies across the world. We can choose what types of funds we invest in and as shareholders we can – through the providers and fund managers who look after our pension savings – influence how companies are managed. This is often referred to as ‘stewardship’ and can be practiced by any fund, whether it has a sustainability label or not. Some funds go a step further and explicitly target positive environmental and social impacts, alongside financial returns.

Questions to consider when reviewing your investments alongside your personal values 

A large majority of pension savers are invested in a scheme default fund – the fund that is automatically selected for you if you don’t make an active choice yourself. Increasingly, default funds take into consideration ESG factors, but they may do this in different ways. For example, they may exclude certain types of companies from investment – such as those involved in tobacco production, controversial weapons or thermal coal extraction. They may also increase or decrease the weighting (the percentage invested) in companies based on a specific factor, such as carbon emissions or ESG scores.

A small amount of research – simply logging into your pension account and looking at the factsheets for the funds you’re invested in – could help you get a sense of whether they’re aligned with your values and preferences. It’s about asking questions:

• What is my pension fund doing to include sustainability considerations?
• Are the underlying investments in my portfolio aligned with my values?
• If they’re not, is my fund manager voting and engaging to nudge misaligned companies in the right direction?
• Or are there more suitable funds for me?

Investing your money in a more purposeful way for societal good

We’re all looking for ways to help make a difference for the benefit of people and planet. While taking the more obvious actions such as recycling and taking public transport is important, ensuring that our pensions are invested sustainably and are aligned with our personal values could also positively influence the world we live in. You can find out more about what responsible investing is on our responsible investing hub.

Navigating different responsible investment approaches and funds isn’t easy, so it’s important to speak to a financial adviser if you’re unsure about which investments are best for you. If you don’t have a financial adviser, you can visit MoneyHelper to find the right one for you – but please be aware there may be a charge for advice.

Remember, the value of investments may go down as well as up and isn’t guaranteed. You may get back less than the amount invested.