It’s no accident that our first article of the year is a sustainable one. And we’re getting stuck right into it. Here is a framework that you can use to put your money to work, sustainably.
We think sustainable money has five pillars:
1. Consume
2. Invest
3. Donate
4. Contribute
5. Learn
Our expertise is clearly the investment pillar, and at To the pound we’re big believers in the power of investment for driving change. But if we focused our article solely on investment then we’d be neglecting the other powerful ways that you can be more sustainable.
Within each of these pillars, many of you will probably know more than we do about how to be more sustainable. Our article is a framework, a starting point. We’d love to hear from you in the comments to this and our other articles about how we can build on it. Even better, if any of you have expertise in the field of sustainability that you’d be happy to share with us, we’d love to feature your work as a guest article in the sustainability series section of To the pound, so please send us an email.
1. Consume
One way of spending more responsibly is to refrain from spending in the first place. Not spending gives you more firepower to pursue the other pillars. But let’s face it, you are going to spend, so we’d rather be pragmatic and focus on how to spend more sustainably, rather than not spending at all.
At To the pound, our mental anchor for this pillar is to try and fit each consumption decision into the circular economy. In addition to refraining, which we mention above, the circular economy encourages consumers to share consumption, prolong their use of a product, re-use products, refurbish products, and recycle products when they’re finished with them. You’ll find that if you really embrace circular consumption patterns then you needn’t refrain from spending in the first place; you’ll get what you want and need, and you’ll get more of it! By the way, ‘consumption’ involves your use of transportation, your use of energy… everything.
Of course, there are lots of specific suggestions we could make within this pillar, such as choosing greener packaging or investigating the source of the materials that go into your products. In addition, sustainability is about more than just the environment, which is the main focus of the circular economy approach. But at To the pound, we’ve always believed that simplicity works, at least to begin with and at least until you’ve mastered the basics.
So, in our framework, you need only think about one thing for this pillar: is this consumption decision compatible with the circular economy?
2. Invest
Sustainable investment funds should form the core of your sustainable investing efforts. Fund management companies have been jumping on the sustainability bandwagon in the last few years, and that’s good for the normal investor, because it creates a wealth of choice. But there is a spectrum of sustainable investing, and as you go down through the list below, the different approaches to sustainable investment become more meaningful in terms of what they’re actually doing:
- Exclusionary – fund managers exclude ‘bad’ assets from their funds. For example, a fund may choose to exclude tobacco stocks and oil stocks.
- Process-oriented – in addition to the above, fund managers adapt their investment processes to consider sustainability-related information in everything they do
- Objective-based – in addition to the above, fund managers set sustainability-related targets for their fund. For example, a fund may seek to have a carbon intensity of half that of a comparable benchmark.
- Impact – in addition to the above, the fund may seek to ensure that it has a demonstrably positive impact on one or more elements of society
At To the pound, we think that its only really the last one – impact – which has a meaningful and demonstrable impact on society, as the name might suggest. However, we also think it’s the one where sustainability begins to trade off against return, if not done properly. At To the pound, we don’t think you have to compromise your financial objectives in order to pursue your sustainability objectives, but if impact is your goal, then picking the right impact manager will be crucial to ensure that one objective doesn’t cost you in terms of the other.
As (sceptical but optimistic) passengers on the corporate bandwagon who know all too well what’s going on behind the scenes, your authors at To the pound would like to sound some additional health warnings:
- There is a lot of ‘greenwashing’ and clever marketing going on in the industry. In conversations about how to create a sustainable fund, discussions invariably centre around how to create a sustainable product. That is, the motivation for launching sustainable funds is primarily commercial and secondarily sustainable.
- Many funds will contain assets that you would not be pleased to find in a sustainable fund, either because the fund’s exclusion rules are too vague or because the fund’s ‘process-oriented’ approach deems an asset appropriate when all things are considered.
- Although the first three approaches above are easy for asset managers to do, impact investing is not a natural evolution of the established investment processes in place at asset management companies. The behemoths of asset management – Blackrock, Vanguard, Fidelity, the investment banks – are not used to impact investing. It is not something they have much experience in, and even if they throw resources at it, its unlikely they will ever really do it like they mean it, for want of a better term. Even the comparably mid-sized UK managers like Legal & General, Aberdeen Standard, Schroders and HSBC are – despite their best intentions – struggling to meaningfully embrace impact investing in their core businesses.
- At the other end of the spectrum, there are ‘boutique’ asset managers specialising in impact investing. These firms are making genuine attempts to meaningfully create impact through capital allocation, but many of them have thinner track records with less experienced personnel and less established risk management processes, amongst other things
- So, there is a sweet spot for impact investing, where the dual objective of sustainable investment is not a trade-off but a symbiotic set of endeavours. However, at To the pound, we don’t go as far as recommending individual investments in our articles.
With all of that in mind, what are the things you can actually invest in? This section so far has talked about funds, and that is without doubt where you should start. Even with the shortfalls we mention, ‘sustainable’ funds are still a few steps closer to being sustainable than non-sustainable funds. They’re not perfect, but they are the best way of forming a reliable core portfolio of sustainable investments.
Then, to personalise your efforts and target your money at the things you care about the most, there are some other tools you can use. Note that, as we’ve said a few times before, there’s often a trade-off with these investments, whereby you might forego some returns in the interest of sustainability.
- Community shares. The UK-based, government-sponsored Community Shares website is a bit convoluted, and the government’s own promotion of community share initiatives is a bit weak and confused, but such initiatives exist. We would point out, however, that community shares are generally much closer to philanthropy than they are to investment.
- Crowdfunding/Kickstarter-style campaigns. Some campaigns will be more profit-oriented, while others will be more philanthropic. Your choice, but remember that even for those businesses that claim to be for-profit, the vast majority (very close to 100%) of them will fail, having never made a penny.
- Green bonds, including green bond funds. This is a thriving asset class, and we expect to see huge growth over the coming years. The asset class has become professionalised, and many large institutional investors are getting involved. Take that to mean that with green bonds, you may not need to trade-off against returns as you would with some other sustainable investments.
- Social bonds. These are similar to green bonds, but with non-climate motivations. The market for these is far less developed, but it is set to grow. Ask your broker about whether they have a way for you to access them.
Measurement of the impact your investments are having is a difficult thing to get right. Asset managers are working hard on building systems for measuring their sustainability, but as we know from the points above, they’ll likely fail to build anything meaningful. Impact funds are doing measurement a lot better, and you can often ask for detailed reports which measure impact in meaningful ways, such as ‘hours of electricity saved’ or ‘fewer miles driven’.
The individual alternative investments we mention above are even better. They often only have one thing to think about, and so you’d expect their measurement of that thing to be fairly good. If its not, that’d be cause for worry. What impact funds and individual alternative investments won’t measure, however, is how much more financial return you could have earned if you hadn’t gone sustainable, i.e., the opportunity cost. You might think you don’t care, but it would be useful information to have nonetheless, so that you can assess their effectiveness in pursuing the dual objective. If you really really don’t care about financial investment return, then perhaps the next section is for you.
3. Donate
Despite our belief in the power of investment and its ability to make the world a better place when done responsibly, we also subscribe to the mantra of our partner non-profit organisation, The Mwayi Project. The Mwayi Project – which seeks to help alleviate poverty in Africa by creating opportunities for self-led change – lives and breathes by the philosophy of intergenerational equity combined with effective capital allocation. Basically, that means that while some ‘problems’ are better solved by investing, others are better solved by donating.
Although that was clearly a shameless advertisement for the non-profit that we work with, we think the explicit recognition that the most effective way to drive change is for investment and charity to work together, not against each other, is a powerful starting point for putting your money to work more sustainably. If you want to learn more about this then please get in touch with us at To the pound, or directly contact The Mwayi Project.
If you’re unsure about exactly which organisations to donate your money to, you could start by opening a CAF (Charities Aid Foundation) account. This account lets you build up a pot of donated funds, which you can decide what to do with later. For example, you could ‘save’ £25 per month in the account, then make two or three lump sum donations at Christmas.
Many of you will work for employers who offer to match any donations you make through a ‘give as you earn’ style scheme. These can be very generous – we’ve heard of employers more than doubling the amount that their employers donate. If you use a CAF account, your employer may contribute the matching donations into your account, building it up even more than if you were going it alone.
4. Contribute
Donation aside, ‘contributing’ to a good cause has typically been synonymous with volunteering for a non-profit organisation, project, or initiative. And we believe that volunteering is a great way to use your resources to help a sustainable cause, especially where it’s people that are required to make a difference, as opposed to money.
But there are other ways to contribute, too. It’s likely that you have knowledge, expertise, or just a unique perspective that could help improve the effectiveness of organisations that are driving change on the ground. ‘Think tanks’ are specifically designed to drive policy change, while teams of people at non-profits are tasked solely with research, as opposed to the operations that we normally associate with charities. The Mwayi Project takes a research-driven approach to identifying the best ways to help, and then deploys capital in a targeted fashion; we know how hungry they are for research contributions, from the simplest email opinions through to peer-reviewed research papers.
At To the pound, our entire existence is built on contributing towards the cause of financial democratisation and independence for normal people. The authors don’t get paid for their work, and they write in their free time, which is limited by the demanding day jobs they all work. So, if you’re stuck with ideas for how to contribute your expertise, get in touch with us at To the Pound, or if you’re specifically interested in poverty alleviation in Africa, send the folks at The Mwayi Project a message. Particularly at smaller organisations, your contributions can make a huge difference.
5. Learn
We’ve just talked about contributing new research, ideas and perspectives. But you can also spend time reading the work of others. It’s no secret that education is the ultimate driver of progress. Technological leaps, advancements in productivity, improvements in living standards globally… all started with education. To be able to contribute to anything, you first need to have done your homework.
This pillar seems like a no-brainer to us at To the pound. This article refers to ‘sustainable money’, but what if you don’t have any money? Well, then you can contribute your expertise or labour. But what if you don’t have any expertise, or time to contribute your labour? Well, then you can do some reading. The compounding effects – although they come later – of your efforts to learn now, could be extremely significant. If you’re not someone who likes learning then, well, we probably can’t help you.
There are two routes you can go down for targeted learning about sustainability. These won’t be new concepts to you, but our experience suggests both are valuable for sustainable progress.
Route A: Generalised learning. At To the pound, we are unashamedly generalist within the realm of investment. We are jacks of all trades, and we hope to help our readers progress towards financial independence from a holistic standpoint. We’re passionate about sustainability, and we utilise the framework in this article to put our own money to work more sustainably, but we’re not climate-change or social scientists. Which brings us to..
Route B: Specialised learning. You might actually be a climate change scientist, or an energy specialist, or an animal welfare specialist, etc. You might think that your contribution is limited to your field, but by learning about how it fits into the broader agenda for sustainability, you can contribute to the melting point of progress. Organisations like The Mwayi Project draw upon the expertise of people like you to build roadmaps for progress.
Again, if you’re unsure about where to start, To the pound is a safe space for thinking out loud. Send us an email.
So, In summary…
- Consume: Think of the circular economy
- Invest: Start with pooled investment funds, and then branch out if you’re willing to sacrifice returns
- Donate: Open a CAF account, and start ‘saving’ in it. Leverage employer contributions
- Contribute: Your expertise may be more valuable than you realise. If you don’t know where to start, To the pound is a safe place for thinking out loud. Send us an email
- Learn: Everything starts with education. Soon you’ll be teaching us all
Happy new year! Let’s hope 2021 is a year for sustainable progress in the world.
To the pound 