Sustainable finance is very much ‘on trend’. The combined effects of Covid-19 and COP26 are prompting many to change their outlook on life. People are taking more time to reflect on the bigger picture.
You may have become more aware of your own wellbeing. Or you might even be putting more thought into how you spend and invest your money. One thing, for sure, is that sustainable finance and wellbeing are buzzwords this year, so what’s it all about?
Multiple lockdowns have prompted many to appreciate what used to be taken for granted. Time with family and friends. Eating out and visits 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.
What’s “ESG”?
Historically, investing was 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.
Sustainable Finance
This is a wide term that refers to our decision-making process when investing or spending money. Individually, we might take ESG considerations into account. Collectively, 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. It’s definition of a circular economy is below.
“A circular economy is based on the principles of designing out waste and pollution, keeping products and materials in use and regenerating natural systems”.
the ellen macarthir foundation
Sustainable Investing
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. The aim is to create 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.
Make My Money Matter is a campaign to raise awareness of how your pension funds are invested. It highlights the opportunities to have a much bigger impact on the planet, than just your day to day behaviours.
Sustainable Spending
This is 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 ethical consumerism in the UK reached £98.1bn in 2019, up from £45.8bn in 2010. That’s a massive increase over 9 years and it shows that we are becoming more ‘choosy’ when doing our shopping.
Wellbeing
But here’s the interesting bit. The way we choose to spend and invest our money can have a direct link to our wellbeing. It can affect our long-term happiness and you can read more about the five essential elements of wellbeing here.
Certain spending decisions bring satisfaction that is only short lived. For examples, clothes that we wear just once. Or gadgets that fail to impress and get consigned to the kitchen drawer. Or even the new rattan-effect garden sofa I bought last May when the weather was fantastic. It quickly lost the novelty value and became just another ‘thing’ when the weather switched back to the normal Scottish summer of rain and chilly evenings.
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. This can have the added benefit of supporting small, local businesses.
Summary
If sustainable finance feels important to you, think about which businesses you support when spending or investing 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 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.
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