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Checksies is alive! It's an occasional newsletter about doing money better from @annagoss and @rod. If you were forwarded this by a kind friend, you can sign up here.

4 November 2021: This week, the important politicians are in Glasgow at the COP26 event, where they’re trying to make some policy decisions that reduce the impact of climate change. One of the biggest things you can do about climate change is make your money greener. We might come back to greener banking in a later Checksies but, for now, this one is about greener investing in shares and other things that are sustainable, lower carbon, and better for the planet. 

Three reasons to invest green: 
  1. it might help save the world. 
  2. it might make you feel better.
  3. you might want to avoid carbon-intensive assets that could suddenly drop in value if the world turns away from fossil fuels etc. 
And for fairness, three reasons to not invest green:
  1. some green ETFs and mutual funds have higher management costs than their non-green counterparts, which could reduce your investment return.
  2. by excluding some or many stocks because they’re not green enough, you might get worse investing outcomes. Actually, the data on this is a bit contested, not least because the term “ESG” has become very broad. But it’s fair to say that, compared to investing in the entire market, investing green may introduce additional risks. (Good test: how will you feel if your green stocks do badly compared to your ungreen ones?)
  3. you want the planet to burn.
Two small notes before we get into it:
  • Obviously this is not financial advice because we don’t know anything about your personal financial situation or needs. But it might be information that helps you make your own plans.
  • You’ll see terms like “ESG” (Environmental, Social, Governance) and “SRI” (Socially Responsible Investing), “ethical”, “sustainable” or “impact” investing. ESG and SRI look at green stuff but also at social impact, good corporate governance etc. Sometimes funds use terms “ESG” to mean that they’ll exclude bad investments and “impact” to mean that they’ll only include really carbon positive ones, but one problem is that all of these terms get used a bit interchangeably, so you have to dig into each fund a bit to find out what they’re about.
OK, so here are some ways to invest green, from simplest to most complicated.

1 - ESG index trackers

This is the easy, simple way. The investments will be greener and your investment costs are probably going to be a bit higher compared to a normal index tracker fund.
  1. Buy some iShares MSCI World SRI, an exchange-traded fund (ETF) which is global, low cost, and has a good ESG score. This ETF is available in Euro, dollar and British pound-denominated variants. In the UK we’d go for the one called SGSW (GBP and “distributing” which means any dividends are paid to you as income) or SUSW (Euro and “accumulating”, which means any dividends are reinvested in the fund so its value goes up). That ETF is a pretty good place to start.
  2. If you’re using an investment platform which doesn’t have iShares MSCI World SRI yet - hello Freetrade (that’s an affiliate link, we both benefit if you sign up) - you could go for something like Vanguard’s ESG Global All Cap (V3AM).
  3. Don’t forget to buy them in your ISA or SIPP to make it nice and tax efficient.
If you want to do some research: there are many other ESG ETFs and mutual funds you could choose from - you can look some of them up on this page, or you can read things like this. Remember that not all ETFs are available to investors in all countries.

2 - Index trackers plus a bit of green investing on top

This is easy-ish - you’ll have a bit more research to do and some decisions to make. But if you’re already invested in an index tracker, you don’t need to do the first step :)
  1. Invest in a global, low cost index tracker like Vanguard Lifestrategy or their VWRP ETF. Acknowledge that you’re invested in the whole market, which means there are some fossil fuel companies in there. That might not sit well with you, so
  2. Correct/green nudge that by doing one or more of these things:
    • add an ethical index tracker, as above
    • add some ethical investments, like those on Abundance, Ethex or Triodos (but be aware that it might be hard to evaluate their projects, and they may be hard to sell if you need the money in a hurry) 
    • add some individual green stocks to invest in (you have to choose the green stocks, see below)
    • give a percentage of your wealth to charity or good ethical causes.

3 - Do your own research and then invest

With this approach you’re going to select the right green stocks and then buy them. You’ll need to be good at two things: identifying green stocks and identifying good investment opportunities. Most of us are not consistently good at either of these, so it is quite a hard way to invest and tbh we don’t recommend it. Anyway, here’s how:
  1. Work out what your ethical investment criteria are. This may take a good deal of reading and thinking - maybe start with something like this.
  2. Read a lot of corporate governance and ESG reports from companies, and choose the ones that meet your ethical investment criteria (this can be quite time-consuming). This can be quite tricky because you get companies with OK ESG scores because they’re good at eg governance while being poor at sustainability :(. Sectors to look in: clean energy, carbon reduction, battery storage, biodiversity, waste reduction, forestry maybe.
  3. Invest in them when they’re priced at a discount to their intrinsic value. Later, sell them when they’re priced at a premium to their intrinsic value. This is quite hard to do.

4 - Wait for the market to catch up with you

Because there is increased interest in green investing, investment money is flowing into greener investments. Even institutional investors want to see the stocks they hold becoming greener. If this continues, perhaps all stocks will become greener. If that’s true, all you have to do is wait. Though you might think you could help make it happen faster by taking some action now: you could buy some stock and attend the company’s annual general meetings, agitate for an improved green plan.

OK, so those are four ways you can invest greener. There are many different ways to reach an investment goal, and you have to work out which is the right one for you.

Money where our mouth is

Anna has just under half of her SIPP pension invested in green funds like the FP WHEB Sustainability Fund. She’s also got some SIPP money in an active fund - where a man (usually a man) chooses which stocks sit in the fund - called Baillie Gifford Positive Change. Anna also has a small Innovative Finance ISA with Abundance and punts a hundred quid here and there on interesting looking projects. She’s got a huge 9 shares worth £92 in the ETF called iShares Global Clean Energy on Freetrade. Anna is not sure she knows what an ETF really is just yet, but will hopefully one day work it out. Vanguard now have an ESG Passive fund which makes up a whopping 3.9% of Anna’s ISA.

Rod is investing in some broad green ETFs like SUUS, IESG, SUJA and SUES on Freetrade and SUSW (see “ESG index trackers” section, above) on Interactive Investor. Also some more focused “impact” funds and ETFs like FP WHEB C, INRG, ZERP and GSF. Last week he bought a forestry etf. The green stuff is now about a third of his portfolio, and growing.

What next?

If you want to invest green, you’ll need an ISA (tax-efficient!), a SIPP (tax-efficient!) or a general investment account ("GIA" - not tax-efficient!) account on an investing platform.

If you don’t already have one of those, you could look on Monevator for a platform that has low costs. Here’s one of them: Freetrade is a stock broking app with an ISA and SIPP. It’s easy to use and many stocks and funds have no trading costs. If you sign up to Freetrade via this link they’ll give you (and us) a free share worth between £3 and £200, which is a nice way to get started.

Previous editions of Checksies. And what would you like us to write about?:

The small print

We’re not independent financial advisors, so this isn’t financial or investment advice. Before spending money on financial products, you should talk to an Independent Financial Advisor. The ones you want are qualified as “Chartered Financial Planners”, and you can find one here. We’re in the UK, which means we don’t understand anything about advice, money or tax in other countries. We have biases. We hold shares in whatever Vanguard and iShares think is appropriate. We may also hold shares in individual companies, for instance our employers. We’re trying to work out what’s best to do, just like you are.

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