Amongst all the anxiety and negative news surrounding the coronavirus crisis, there are signs that many people are finding time to reflect on the bigger world picture. Social media feeds regularly feature suggestions that when this crisis ends, we should not simply return to life as it was before lockdown. Instead, we should find a ‘new normal’.
Our attention has been turning to areas of life that we often take for granted, but now miss. Time with family and friends, a desire to enjoy simple experiences, such as eating out and exploring the great outdoors.
For some, thoughts of material purchases are gradually shifting towards thoughts about the environment, social justice and health. Is it time for sustainable finance to break through as an everyday consideration for us all?
In recent years, the acronym “ESG” has become commonplace in the world of investing. Environmental, Social and Governance criteria are now mainstream as investors become more socially conscious. It remains a complex area, however, and it’s not a given that ethical investing is the same as sustainable – and vice versa.
What is sustainable finance?
Sustainable finance broadly refers to the decision-making process when spending or investing money. Such decisions may 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 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”.
At an individual level, it’s about making financial decisions that help society. For example, supporting local business, reducing consumption, minimising food waste and upcycling.
Sustainable spending is about buying with ethical awareness and personal values that support society and the environment. 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. So, sales of ethical goods and services are up almost tenfold in 20 years.
The way we choose to spend and invest our money can have a direct link to our wellbeing. Certain spending decisions bring happiness that is only short lived – such as the initial thrill of buying material items that quickly lose their novelty value.
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 create a sense of having more spare time can improve wellbeing. Time itself can be ‘purchased’ by employing others to do household jobs, which can have the added benefit of supporting small, local businesses.
Sustainable investing is 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.
Sustainability has become so widely recognised that new financial regulations, due to take effect next year, will require that financial advisers consider ESG factors as part of their advice process. So, when receiving investment advice from 2021, we can expect to be asked for our views on ethical preferences and sustainable investing.
Now is a good time to reflect on our personal values. If sustainable finance feels important to you, think about which businesses your spending and money decisions will support.
It’s well known that personal finance is one of the things that people like to do least. But taking the opportunity to work with the right financial planner or coach can improve overall wellbeing and happiness.
Coaching 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.
Graham Wells is a Chartered Financial Planner and Financial Coach at GroWiser Financial Coaching