Money clean-up lessons, post-COP21

Written by Rebecca O'Connor on 18th Dec 2015

While there will be those who will continue to invest as though the earth has not just turned on its axis a little, sticking with business (and life and money) as usual, it behoves us to inform you that this is, frankly, nuts.

You may still see headlines such as: “Is now the time to buy oil?” and of course, such a question, when the black stuff is at $30-ish a barrel, would be completely normal among savvy investors…. in olden times. Not no more (and we’re talking to you, curiously old skool Money Week emails).

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Because while buying low and selling high is the wisdom of the market, the market has never before had to seriously deal with that annoying business of making sure the planet doesn’t boil up like a lobster in the desert. 

Post COP21, the Paris climate talks that ended just less than a week ago,  at which 195 countries reached an agreement to basically phase out fossil fuels within many of our lifetimes, the how-to-profit-from-cheap-fuel patter takes on a decidedly foolish look.

Already since the agreement, renewables stocks have risen globally, and fossil fuel shares have fallen.

Yes, we know, oil is likely to rise again, which means some will undoubtedly profit if they buy in now. But wouldn’t it be great to unshackle yourself from this fall-buy, rise-sell, mentality and be free to invest in steady, long-term growth instead?

Call us crazy, but that sounds rather relaxing. As Georg Kell, vice chairman of Arabesque Partners, simply puts it: “Sustainability outperforms in the long term.”

Of course, many of us will benefit from cheap petrol and the increase in disposable income that comes with super-cheap oil. That’s a bit different from actively trying to profit from a resource that is categorically choking off the planet.

Here are 4 top tips (PYCF) on how to apply COP21 lessons to your own cash:

  1. Probe your pension

You probably chose it based on risk profile – most of us do. We are given low, medium or high risk (although they are sometimes called something different) and many of us choose “medium”. And that’s it. No clue about its fossil fuel exposure, or whether a chunk of our monthly salary is actually going, via fat-fee earning fund managers, to mines in Africa. Quietly. Passively. Without a dickie bird in our ear. When you start to think about where your pension is going (and you will find Share Action and Move your Money other great resources here), you might find yourself wishing to change it. The problem is how to do this without incurring costs or incurring more risk to yourself.

Employee pension schemes do not (yet) offer a “sustainable” pension (if they do, let us know, we’d love to sing their praises). So already, this creates a problem for those who want to benefit from the employee scheme but don’t want their cash to be invested harmfully. We can’t tell anyone not to invest in an employee scheme if they have one. But what you could also do is ask your provider about the companies the funds invest in, and if you aren’t happy with any of them, let them know. It may lead to nothing, but no one can hear your thoughts and more pressure from pension holders can only help.

Investing via a Self-Invested Personal Pension can be risky and there are cases of bad advice leading to avoidable losses in some esoteric investments that have been placed into SIPPs. But there are plenty of listed sustainable funds to choose from these days that can go in a SIPP (or stocks and shares ISA), so this may be a good option for you if you feel comfortable taking control of your own pot (or with the help of an adviser).

2. Your salary is your power

Switch your current account away from the Big Four banks. Arguably, this should be number one on the list. For most of us, the bulk of what we earn is a monthly salary. For some of us, there is nothing left over to save or invest at the end of this for us to “vote” with, which means all of our power (our money) is what we do with our salary. It’s ironic that we give this power away so readily – very few of us switch current accounts ever. It’s really worth considering if you don’t want your money to be sucked up into bankers’ bonuses and resource exploitation. But there is a huge problem with a lack of competition. Nationwide and Co-op remain the best options. Read our current account switching guide here.

3. Clean, green and not very mean

If you are investing in energy, make it renewable. Never more expensive than a Big Six Standard Tariff and frequently better value than a Big Six deal, the likes of Ovo, Good Energy and Ecotricity are the best and most direct way to save the planet with your cash (while Ovo is not 100% renewable, it is phasing out coal completely and always offers double the UK average of renewables in its mix.) Check out the cheaper-than-you’d-think tariff charges in this guide.

There are many other ways you might choose to profit from renewables: solar panels on your roof, an investment in a fund, shares in a community energy scheme, such as those listed on Ethex, or debentures in projects via Abundance Investments. The Feed-in tariff incentive, which pays homeowners a rate of pence per kWh for solar energy produced, is being cut by 65% in January, so if you are doing the calcs, make sure to use next year’s figures and not current ones, as otherwise you could end up disappointed.

4. Feeling is mutual

As a general rule, stick with building societies. We aren’t saying that mutual organisation are always ethical, but they typically don’t have such an, ahem, open door policy when it comes to what they do with your cash. Because all they do with it is lend it to borrower customers and pay their staff with it – no crazy derivatives or floors full of traders or as Olivia Bowen, from Castlefield, the IFA, puts it: “mutuals could be selected over banks as they are owned by their members rather than greedy shareholders!” Mutuals are like the Roy Cropper of money – nice and simple.

For mortgages, Ecology Building Society are the most ethical option – but your property has to have some environmentally useful features. Norwich and Peterborough used to do a “green” mortgage – whereby they offset your carbon by planting trees.