Just one in five Brits picks financial products based on ethical merit - here's how to make more principled choices for your money

25 February 2019

Despite the vast majority of Brits saying they try to live ethically, just one in five does so with their finances.

More than two-thirds (71%) of the British public say they try to live their lives ‘ethically’ according research conducted by digital wealth manager Nutmeg.

This includes decisions such as reducing home energy and water consumption, changing methods of travel to reduce carbon emissions, or choosing ‘socially responsible’ companies for utilities, food and clothing.

But just one in five (20%) said they made similar choices when it came to their finances. More than half (54%) said they thought it was important to make ethical financial choices, but it is apparent that most find this difficult to implement in their daily lives.

Shaun Port, chief investment officer at Nutmeg, comments: “People are used to understanding what impact the decisions they make in their lives – whether it’s always recycling, walking or cycling to work and choosing more eco-friendly household appliances – can have.

"But when it comes to their finances, it’s often impossible for people to see how socially responsible their choices are and what impact they have.”

Unethical finance

There are ethical implications for a range of different financial products in people’s day-to-day lives, although many will consider the ‘ethicality’ of a provider differently.

For instance, is it unethical to bank with an institution that routinely treats its customers poorly, or cuts services to increase its own profits? For some, earning profits isn’t ethically questionable, but the line blurs when relentless profiteering comes in to play.

Perhaps your credit card provider has exploitative Ts&Cs and traps people into more debt. They could even be a dreaded ‘payday lender.’

And have you considered what your pension or Stocks and Shares Isa is invested in? In some cases, you might be surprised to find that your money is being used to finance tobacco, arms, or companies that pollute the environment.

For this reason, socially responsible investing (SRI) or environmental, social and governance (ESG) portfolios exist – to make it easier for pension savers and investors to make ethical choices for their money.

Mr Port adds: “For many people, financial investments – in particular their pension – will be among the biggest investments they make and are often long-term in nature. However, there’s very little information for people who want to know if their investments are in line with their values.

“Our research has shown that three-quarters of people think it’s important to reduce carbon emissions by changing the way they travel. But investing your pension for twenty, thirty or forty years in a socially responsible portfolio that invests in companies that reduce their carbon emissions could have a much more significant impact than only cycling to work.”

Things to consider about a company’s ethics

ESG is a very ‘on-trend’ theme in the world of finance. But what does it actually mean?

Investment funds and firms that explicitly consider ESG implications when investing on your behalf will look at three key indicators from the companies they are considering buying.

It is a useful framework to have when considering using any kind of financial firm. Here is an idea of the types of questions a fund manager will ask when considering each component of ESG:

E for Environmental: Does the business have high carbon emissions? Does it have an impact on water stress, pollution and waste? Does the firm use renewable energy in its production or processes?

S for Social: Does the company misuse data, or hinder the privacy of its customers? What is its labour management record like, and its health and safety record? Does it consider the labour management of its own supply chain or have controversial sources for its products?

G for Governance: Is the business’s product ethical? Does is have a diverse board of directors? Are its executives paid proportionately? Does the firm avoid paying taxes in certain jurisdictions? Does it behave in an ‘anti-competitive’ manner?

Finally, Mr Port says: “We interact with our finances on an almost daily basis, whether that’s our current account or card provider, pension contributions or investments.

“And with more people realising the importance of making ethical decisions across all aspects of their life, we want more to be done to show people the difference their investments could make and how they fit with choices they make elsewhere in their lives.” 

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