‘Good’ money: How the ‘Blue Planet Effect’ is changing the way you can invest
MoneyPlus Features Team | October 9, 2019
Time to read: 5 minutes
From climate change to social inequality, the world faces clear challenges. And many of us have made changes to try and live more responsibly. These days it’s possible to take this approach with our money – making it work harder for the benefit of ourselves, society and the planet.
It’s often called the Blue Planet Effect. Inspired by programmes like Blue Planet and the work of high-profile campaigners, from 16-year-old Greta Thunberg to 93-year-old David Attenborough, many of us are making small changes in our lives to try and make a difference to the world – from ditching single-use plastic, to saving energy or upcycling clothes and furniture.
There is a growing awareness of issues such as climate change and social inequality, and many of us are keen to play our part in solving them. That has led to growth in everything from green energy to ethical clothing, food and drink.
Choosing how we save and invest our money is another powerful way we can make a difference.
With this year’s Good Money Week (GMW) happening in October, it’s the perfect time to consider your sustainable, responsible and ethical options when it comes to your money.
As the GMW website explains, it wants “everyone to know they have sustainable and ethical options when it comes to their finances so we can all have a positive impact on the environment and society without sacrificing wealth.”
This year, GMW focuses more on pensions and how they are invested – particularly as many people aren’t aware their pension is invested in the first place.
Investing in a better society and environment
Investments can seem a bit of a remote concept, difficult to relate to – despite how we can use them to support our lives.
But what if those who manage the investments could positively influence the companies they invest in so that they have a better impact on the environment and society?
This is already happening – it’s called stewardship. It means that investment managers talk to the companies they invest in about their environmental, social and governance (ESG) practices to influence positive corporate behaviour. They can also use voting rights on behalf of investors to encourage good management in areas such as climate change, labour standards, diversity and good governance.
And what if investment managers could create funds that invest only in companies which aim to achieve long-term financial returns alongside a positive and measurable contribution to the environment or society? They do, it’s called impact investing.
These two approaches are joined by a wide choice of other options. It’s in response to people’s growing interest in investing more responsibly as well as the increasing need to manage different kinds of investment risks, like those associated with the changing environment.
So whether you want to invest in an ethical fund which screens out negative investments (such as tobacco or arms) and screens in positive investments (such as cleaner energy or sustainable transport), or you want to invest in a fund with a specific environmental or social theme, there’s lots of choice.
The Blue Planet Effect in action
The emphasis on staying true to our values is now feeding into how we think about our investments, with rising demand for more responsible and sustainable investment options.
Globally, more than $22.8 trillion is now invested sustainably – that’s $1 in every $4 under professional management according to a report from Morgan Stanley*.
Better behaviour can mean better performance
With information and news easier to access than ever online and via social media, the products and practices of companies are constantly in the public gaze.
Similarly, investment managers are increasingly scrutinising how responsible a company is as this can influence its future performance.
Here’s the thinking. If companies take into account all the risks and impacts of their operations – including human rights, environmental issues and how they manage their employees – their businesses tend to be better managed. And if they are, this can support performance over the longer term.
With so much potential, what’s stopping us?
Research shows many of us want to invest responsibly but lack of awareness can get in the way.
The good news is that there are many more options these days, so it’s more likely than ever that there’s one that works for you. Check out the options that your pension provider offers – most have a dedicated web page explaining their approach, so you can find the option that’s right for you.
*Morgan Stanley, Institute for Sustainable Investing, Sustainable Signals: Asset Owners Embrace Sustainability, June 2018
The information in this article should not be regarded as financial advice and is based on our understanding in October 2019. The links provided to external sites are for general information purposes only. Standard Life accepts no responsibility for information contained in these sites.
Investments can go down as well as up and may be worth less than was paid in.