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Investing for a better world

It is great to see so many people and organisations focusing on finding ways to reduce climate change. I particularly love that schools are doing so much to educate kids on this matter.

My kids have learnt so much and are passionate about this topic.

This got me thinking about how else we as parents can help make the world our kids will inherit a better place to live in.

Of course we and our kids can take positive actions in terms of how we treat the world.

Whether this be eating less red meat, using less electricity and recycling more. My kids are really into this and will let me know if they see someone using single-use plastic, or not recycling.

How investing can make a positive impact on the world:

You could invest your kids’ savings in companies that are actively managing their businesses to improve the world. This has now been coined as ‘Impact Investing’.

This action has two positive implications:

1. Provides conscientious companies with more funding so they can do more environmentally friendly research or hire more suitably qualified people and therefore increase their impact on the world.

2. With more money going to these companies, other companies needing the ‘push factor’ should by spurred on to start to make changes in order to make sure they still get the investments they need to continue doing business.

A small change to how a large company acts can have a much bigger impact on reducing climate change than we can make individually. Therefore, taking an action which helps companies to change is a great course of action you can take to help make the world a better place for our kid’s futures.

Investing in these companies also has two powerful benefits for your kids:

Saving money to make money - by investing you’ll be using their savings to help them make money. Showing them that they can save money to make money is a life skill which is not taught in many schools. Investing is one of the best ways to allow money to make money. Especially compared to saving in a bank account.

Improving the world they will live in - by investing in these companies they will also be actively helping improve, and take responsibility for, the world that they will be living in when they become an adult. Already almost 50% of millennials would like fuel-free saving options according to a Good Money Week YouGov survey. Positive demands like this from the younger generation will no doubt increase.

How do these investments ‘save the world’?

There are many different ways in which companies can change to make a positive impact on the world. For example, this can vary from reducing the amount of carbon they emit to using more environmentally friendly packaging for their products.

When looking to assess the impact a company is making on the world then consider:

Experts have come up a rank of all the companies in different markets based on a scoring system of the above factors so it is now possible for investors to exclude companies which score below a specific threshold on some important climate related factors.

Investors can opt to give more money to those companies that have a high (positive) score and less or no money to those with a low (negative) score.

How do you invest your kids savings to save the world?

The best option is to invest their savings in to an investment fund rather than you trying to find specific companies which are saving the world. Remember, just because a company is trying to save the world, it doesn’t mean it is a good investment.

Due to the increasing demand for investment options which target low fossil fuel companies there are fortunately now plenty of investment fund choices out there. The investment funds vary in terms of what investments they make as they try to find the balance between making an impact on the world whilst also providing good investment performance.

Don’t worry if you are new to investing. There are plenty of blogs to help explain all about investing to beginners here.

Below are just some of the investment funds currently available which vary by what they do in this area (these are examples only, not to be taken as recommendations):

Vanguard SRI Global Equity Fund: Low-cost fund that tracks the global stock market but avoids certain companies if they do not meet certain criteria in terms of social responsibility. (i.e. avoids ‘polluting’ companies)

L&G Future World Climate Change Equity Fund: Global equity fund which excludes companies which do not meet certain criteria in terms of social responsibility and then provides more funding to those that score highly using their score and ranking system. (i.e. avoids ‘polluting’ companies and, ranks the ‘non-polluting’ ones)

Baillie Gifford Positive Change: A fund where the manager will invest at least 90% in shares of companies anywhere in the world whose products or behaviour make a positive impact on society and/or the environment. (i.e. proactively seeks to find ‘non-polluting’ companies).

More examples of different types of funds can be found here.

Are these types of funds a good investment?

YES. These investment funds are still investing in the global stock markets so their performance is largely driven by what the global stock market does. Compared to a savings account, these funds are therefore expected to do much better over the long-term (over the short term it is much less clear), especially with savings rates so low.

My view is summed up in a quote I heard:

“People who floss their teeth have a longer life expectancy than those that don’t. It’s not the act of flossing that makes them live longer, it’s the fact that they care enough to floss that makes the difference.”

I believe this sentiment will apply to companies. Whilst it is not certain that just trying to make the world a better place will make a company better, those companies that do care enough to make a change are more likely to be around for longer.

When I’ve spoken to parents that have invested their kids savings in this way, their view has generally been:

“If I am making a positive impact on the world, then I’m happy to take a bit of uncertainty over the performance relative to other investment options”.

A caveat to the above - there are many funds out there which are doing good for the world but are charging very high fees. Make sure you find an opportunity which is helping improve the world but is also a good investment for you by considering the fees you pay.

Next step:

If you’ve decided to invest your kids savings to make the world a better place now you’ll need to set up an investment account with a third party to be able to invest in these funds. You can set this up as a Junior stocks and shares ISA or you can set it up in your name.

Check out our 3 step guide to opening an investment account or, you could seek assistance to do so via an independent financial advisor.

If you found this blog useful then please remember to share to help other parents.

Thanks for reading!


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1 Comment

Reid Paul
Reid Paul
Aug 27, 2021

This was great to read, thank you

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