Has 2020 changed your outlook on life? There’s been a torrent of negative news about coronavirus this year, but there are pockets of positivity where people are finding time to reflect on the bigger picture.
The experience of ‘lockdown’ has enabled many of us to appreciate what used to be taken for granted – time with family and friends, eating out, going to the pub, enjoying festivals and exploring the great outdoors. You might even find that thoughts of material purchases are shifting more towards the environment, social justice and health.
In terms of personal finance, this whole thing about ethics and the environment has been gathering pace for a few years now. The acronym “ESG” has become commonplace in the world of investing.
It used to be that the focus of investing was pretty much all about profits and making money. But now, Environmental, Social and Governance criteria have become mainstream. It’s now about spending and investing your money in a way that reflects your values.
This is a wide term that refers to our decision-making process when investing or spending money. We might take environmental, social and governance considerations into account, but the real driver is towards a low-carbon, climate resilient and circular economy.
The Ellen MacArthur Foundation has done a lot of work in this area and describes a circular economy as one “based on the principles of designing out waste and pollution, keeping products and materials in use and regenerating natural systems”.
Nearly everyone pays into at least one pension and many of us have ISAs and other investments. But we don’t all know which businesses we support within those products.
Sustainable investing means being more aware of our investment choices, with the aim of creating long term growth by supporting companies that have a positive impact on the world. This can range from social initiatives in developing countries to the development of green technology.
It’s all about making financial decisions that help society. For example, supporting local business, reducing consumption, minimising food waste and upcycling.
The Co-op reported that sustainable spending (excluding community and charity) in the UK reached £29.7bn in 2018, up from £3.1bn in 1999. That’s a massive increase over 20 years and it shows that we are becoming more ‘choosy’ when doing our shopping.
But here’s the interesting bit. The way we choose to spend and invest our money can actually have a direct link to our wellbeing – it can affect our long-term happiness.
Certain spending decisions bring satisfaction that is only short lived – like the new rattan-effect garden sofa I bought in May when the weather was fantastic. It quickly lost the novelty value and became just another ‘thing’ we own, especially when the weather switched back to the Scottish summer of rain and chilly evenings!
But spending money on or with other people can provide longer term wellbeing. For example:
• Buying experiences and memories
• Gifting to charity and friends
• Activities involving social contact
Even spending money to free up more spare time can improve wellbeing. For example, you can ‘buy’ time by employing others to do household jobs, which can have the added benefit of supporting small, local businesses. It can also help avoid DIY disasters, like when I drilled through an electric cable in an attempt to fit new living room lights last month. That did nothing for my wellbeing!
If sustainable finance feels important to you, think about which businesses you will support when spending or investing your money – even if that means finding out where your pension contributions go.
Personal finance is one of the subjects we least enjoy talking about. But taking the plunge and working with a financial coach can help you to explore your values and your relationship with money. This, in turn, can empower you to make decisions that help achieve your true purpose and goals in life.