A growing talking point in the fight against climate change is finance. The world’s financial institutions wield significant power when it comes to infrastructure and other funding. Convincing them to channel money away from fossil fuels and towards the green transition would be a huge win for the environment.
What is Green Finance?
Green finance is loosely defined as structured, financial activity that helps environmentalism. This means channeling financial products such as debt mechanisms, loans and investment towards green products. These may include renewable energy, nature conservation and preventing pollution.
Currently, a green revolution is taking place in the financial sector. Banks, hedge funds and insurers are waking up to the effects climate change could have on their bottom line. This is evidenced by the support for the Task Force on Climate-related Financial Disclosures (TCFD). The TCFD is the board that guides companies on disclosing information which will aid the path to green investment, and it has grown to 2,600 organisations with assets equal to £18.3 trillion.
Green Finance, COP26 and the UK Government
The Glasgow Financial Alliance for Net-Zero (GFANZ), chaired by former governor of the Bank of England Mark Carney, has set out to unite the global financial sector and steer it towards net-zero portfolios by 2050. It was announced at COP26 that GFANZ now represents £94.5 trillion financial assets from across the world, encompassing 40% of the market, from 450 firms across 45 nations.
Alongside this, UK chancellor Rishi Sunak has developed a science-based ‘gold-standard’ verification process to combat ever-more disingenuous greenwashing. Under these plans, large businesses will be required to report climate risk-related information in line with the TFCD to the treasury. Firms will also have to justify any claims to sustainability, in an effort to make green finance more transparent.
Elsewhere in the private sector, conventions such as the Green Horizon Summit in London, and Building Bridges in Switzerland, have been held to help financial institutions find pathways to green finance. Countries are also taking the initiative, with the Swedish central bank divesting from fossil fuels.
This all sounds like good news! However as those involved are big players, like banks and nation states, you may be asking – what can consumers do to help with green finance?
A good place to start is your pension. Pensions are often the biggest and most long-term investment many of us make outside of owning property, and most people don’t realise how much control they have over where their money goes.
How to Make Your Pension Green
Everyone needs to save for their retirement, however pension funds are often invested in fossil-fuels or other polluting industries, which are traditionally considered ‘safe’.
First of all, if you’re in your default work fund, then find out where it is invested. It might be a good opportunity to stimulate conversations with colleagues and others at your company as to how to make their pension fund greener. It might be that your company is already considering greening the pension fund; find out how they’re doing it.
If you take the decision to opt out, then you’ll need to look for a private plan or fund. At this stage you’ll start seeing a lot of funds with “ESG” (environmental, social and governance). This isn’t standardised and is not guarantee of the ethics of a fund. It is always worth asking to see what the fund is actually invested in, so you can check their green credentials for yourself.
One idea is to look for ‘positive impact’ funds that invest in actively green companies, rather than merely being divested of the worst offenders. Some options for sustainable pension funds to explore are; Aviva self-select pension,Scottish Widows Henderson Global Sustainable Equity Pension, Royal London, Nest Ethical Pension Fund, PensionBee Future World Fund.
As always, being conscious and starting conversations is the best way to spread awareness and avoid the greenwashing-trap; and it can be exhausting! Which is why we want to provide you with all the resources we can and assist in your decisions. Staying informed is the best way to fight climate change and secure our futures in the long run.