Are your savings harming the planet? A no-nonsense guide to carbon divestment.

piggy bank against a pink background

Most people don’t know the ins and outs of the finance world. I certainly didn’t until I worked at a financial services company. For this reason, many don’t realise that the money they have saved up in the bank, or in their pensions, could be funding fossil fuel companies and a whole host of other dubious industries.

The good news is that there’s a growing movement to challenge this and help people put their money where it will be doing good and helping the planet. Taking money out of bank accounts, pensions, investments and other financial products that are fuelling climate change is known as “carbon divestment” or “fossil fuel divestment” (as in, the opposite of “investment”).

The background: what’s going on with your money?

When you save money in the bank or put it into a pension, it doesn’t sit in a Harry Potter-esque vault waiting for you to come and gather in gold coins (don’t worry if you thought that’s what happened—I used to as well).

Instead, banks and pension funds pool the money of the people who have accounts or savings with them and invest it, in the hopes that they will get back more money than they invested.

The problem is, consumers usually don’t get a say in where their money is invested. Most high street banks invest heavily in fossil fuels. Currently, HSBC Holdings, Barclays, Santander, The Royal Bank of Scotland and Lloyds Banking Group have over £66 billion invested in oil, gas and coal extraction[1].

This is a problem, because one of the main reasons why progress has been so slow when it comes to ditching fossil fuels and switching to renewable energy is that some investors are still making a lot of money from fossil fuels.

The idea behind carbon divestment is that if enough people take their money out of financial products that are funding fossil fuels and instead put them into climate-neutral or even climate positive investments, this could accelerate decarbonisation.

What are the criticisms of carbon divestment?

Photo by Johannes Plenio on Unsplash

There are some critics of fossil fuel divestment, particularly when it comes to large organisations selling off their shares in fossil fuels. The argument is that there could be a more effective way of doing things.

There has been increasing pressure on companies and organisations to ditch any investments they have in fossil fuels. For example, last year, the University of Oxford pledged to divest from fossil fuels following a successful student campaign.

Fans of carbon divestment believe that organisations selling off their shares in fossil fuel companies will push down the share prices of these companies, making it harder for them to raise money. However, Adrian Bell and Chris Brooks from the University of Reading are of the opinion that institutions who have shares in fossil fuel companies but want to have a positive impact should keep their shares and try to influence the oil companies to make positive change from the inside.

They argue that otherwise, the shares will simply be sold to other investors who may not be so moral. They also point out that big oil companies tend to have a lot of cash reserves anyway, so divestment may be “water off a duck’s back”—and even if they did run into financial trouble, they would then be ripe for takeover by larger fossil fuel companies.

Bill Gates has also spoken out against carbon divestment, arguing that it is better for investors to actively seek out climate-positive investments, such as new technologies in the field of sustainability.

Personal carbon divestment

Fossil fuel divestment is an incredibly complex topic with many nuances. However, a lot of the criticisms are levelled at companies or organisations with large investments.

On a personal level, many still feel uncomfortable at the thought of their personal savings being used to fund the fossil fuel industry.

In addition, the carbon divestment movement is part of a wider change in social attitudes and behaviours that could help to push for climate action. For example, a recent survey of Barclays and HSBC customers showed that the two banks could risk losing up to 3 million customers of they carry on investing in fossil fuels. This shows that divestment is making waves in the finance industry.

Here are a few of the opportunities that are available for personal carbon divestment.

Photo by Ulvi Safari on Unsplash

Bank accounts

As mentioned, most high street banks are investing in fossil fuels. Whether it’s current accounts, savings accounts or ISAs, there are some banks and building societies offering fossil fuel-free accounts. Here are a few to switch to if carbon divestment is important to you:

Triodos is a leader in sustainable banking. It was founded in the Netherlands in 1980 and expanded to offer current accounts in the UK in 2017. They invest in projects that benefit people and the planet and have been rated as the most ethical bank for UK customers by Ethical Consumer magazine.

  • Building societies

Building societies generally rank better than banks on the ethical front, because they are subject to strict regulations on where they can invest members’ money. While they don’t have strategic green investment strategies like Triodos, they don’t invest in fossil fuels[2]. The top scorers amongst building societies according to Ethical Consumer magazine are Cumberland Building Society and Nationwide.

  • Challenger banks

You might be familiar with some of these new app-based banks like Monzo and Starling. These two are generally considered to be more ethical than traditional high street banks. Monzo could be more transparent about their sustainability stance – all I could find this Tweet where they say that they don’t invest in fossil fuels – but they do seem a lot better than traditional banks. Starling states on its website that it doesn’t invest in fossil-fuel based energy companies.

Pensions

Pensions are a bit more complicated, as there are so many different types. However, it’s definitely worth looking into your pension and finding out where your money invested, as many mainstream pension funds invest in fossil fuels. Recently there has been quite a lot of press about UK councils using pension schemes that fund fossil fuels, with some staff campaigning for their employers to divest.

If you take out a personal pension, for example if you’re self-employed, it’s a lot easier to choose where your money goes. For example, Pensionbee recently launched a fossil fuel-free private pension that you can start up and monitor via app.

One thing I will say is that pensions are incredibly complicated and there are lots of elements to consider. For example, the Pensionbee plan is described as high risk, so might not be suitable for you if you’re a risk-averse person.

Speaking to a pension or financial adviser who is sympathetic to your ethical agenda can be a great help. They can help you balance your moral preferences with your risk profile and your overall financial situation. I’m currently working with the wonderful Kate Woosey of Alex Financial Services to set up a fossil-free personal pension.

Mortgages

Photo by Evelyn Paris on Unsplash

Mortgages are obviously a little different, as you are borrowing money rather than investing it. However, you pay interest to whoever you’re borrowing from, so it’s worth going with an ethical mortgage if you want to commit to carbon divestment.

The best way to go with a mortgage if you’re looking to avoid fossil fuels is by going with a building society, for the reasons mentioned earlier.

Best buy for mortgages according to Ethical Consumer Magazine is Ecology Building Society. They were founded in 1981 with the mission of financing environmental building renovations and supporting sustainable development. However, they only lend to people who are building or renovating a house according to certain environmental standards.

High ethical scorers for regular mortgages are Leeds Building Society and Chelsea Building Society.

More resources

If you want to do more of your own research on carbon divestment and the options that are available to you, here are some great resources that I’ve found really handy:

Ethical Consumer Magazine

You do have to pay an annual subscription of £29.95 for Ethical Consumer magazine, but that gives you access to all the guides on their website, which rank different companies and products according to ethics, based on thorough research. They have a whole money section that covers current accounts, ISAs, mortgages, investment funds, and various insurance types.

Good With Money

This is a great website with loads of information and articles on ethical money and investment!

Go Fossil Free

The fossil free divestment campaign website is a fantastic hub of information where you can learn more about divesting and what’s going on in your country or area.


[1] https://gofossilfree.org/uk/wp-content/uploads/sites/3/2015/05/Move-Your-Money-Divest-Full-Report.pdf, https://gef.eu/wp-content/uploads/2017/01/The_Price_of_Doing_Too_Little_Too_Late_.pdf

[2] https://friendsoftheearth.uk/climate/how-move-your-money-out-fossil-fuels

Please note that I am not a financial professional and this article does not constitute any form of financial advice – it’s for informational purposes only! Please do your own research and/or seek professional financial advice before making any decisions.

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