Growing Popularity for Green Energy and Ethical Banking
Climate change is an ever-increasingly important topic for many people. Recent figures show that more providers are offering green energy tariffs, and more banks are offering ethical banking than ever before.
Recently the UK government announced its plans to be carbon neutral by 2050, and green energy is a big part of these plans.
Green energy comes from renewable sources, such as solar power, wind power, geothermal energy, biomass, and hydroelectric power. Renewable energy is key to combating global warming, a cause that is extremely important to many consumers.
In recent times, green energy has become more popular and more affordable than ever. The latest figures show that in 2020 the UK generated around 45 percent of its electricity through sustainable sources, up nine percent from the previous year. Whilst this is a major step in the right direction many critics say that this is not enough.
Comparison website CompareTheMarket recently said that 81% of households that used their services last year switched to a green energy tariff, compared to 43% in 2019. This shows enormous growth in the number of people switching to renewable energy.
However, there is concern that consumers are not fully aware of what a green energy tariff is. According to Forbes Advisor:
“In reality, if you choose a green energy tariff, you still get your electricity from the National Grid in the same way as a customer on a standard non-green tariff. Electricity is generated from a range of sources – some of which is renewable – and this is mixed together in the National Grid and then supplied to people’s homes. However, there are still benefits to choosing a green tariff as the supplier will match some or all of the electricity you use with the amount they buy from renewable energy generators.”
Many consumers are unaware that when they put money into a savings account, the bank then lends it to a variety of different companies. Ethical Banking is where the companies your bank or building society lends money to are ones that support an ethical cause, such as environmental issues, healthcare, or community investment; rather than industries that could be seen to be a detriment to society, industries such as alcohol, tobacco, weapons, oil, and mining.
Ethical Banking is however a broad term, and different banks will have different principles and issues that matter to them. The Corporate Finance Institute (CFI) describe ethical banking as:
“Ethical banking involves consciousness of how banking practices affect society and the environment. Financial institutions that emphasize ethical practices seek profit like any other financial institution. However, they strive to generate earnings without sacrificing principles or causing harm.”
With the ever-growing popularity of the green movement, consumers are caring more and more about how their money is being used, leading to a rise in popularity for Ethical Banking.
For many of the new challenger banks, ethical practices are built into their business, however, some of the older, more established banks are now having to adapt to the more conscious consumer. Starling Bank is an excellent example of a bank founded on principles, and clearly state in their ethics statement:
“We do not provide banking services to organisations that use excessive power to systemically promote public behaviour that is harmful to individuals, groups or to the whole of society in order to maximise their own profits. This may include, for example, arms manufacturers and tobacco companies. We do not invest in such organisations or take investment from them.”
Since Ethical Banking is clearly becoming an important aspect for customers when deciding where to invest their money, it is likely that in the near future we will see more and more banks following suit, and choosing to fund more environmentally friendly and ethical companies.
Climate-related disclosures to be mandatory for financial institutions by 2025
In November of 2020, Chancellor Rishi Sunak stated that HM Treasury intends to make it mandatory for large UK companies and financial institutions make climate-related disclosures, in line with those recommened by the Taskforce on Climate-related Financial Disclosures(TFCD). These changes will be in full effect by 2025.
But what does this actually mean?
Investopedia describes the TFCD :
“The TCFD, chaired by Michael Bloomberg, began issuing recommendations to companies to aid them in their disclosures of pertinent information related to climate-related financial risks in 2017. The goal of these recommendations was to provide companies a structure and impetus for disclosing this information so as to better inform financial markets and investors. These recommendations are voluntary and are in place as guidelines to assist businesses in identifying and sharing both risks and opportunities they face as a result of climate change.”
These recommendations are now set to become mandatory for large UK companies and financial institutions in a bid to ensure the right information on climate-related risks and opportunities are available across the investment chain.
The thought is that more transparency around how organisations impact the environment will in turn lead to more investment in sustainable projects.
Green Sovereign Bond
In November, Chancellor Rishi Sunak announced that Britain will be issuing its first green sovereign bond this year.
A sovereign or government bond is a type of investment where you loan money to the government for a fixed period of time. At the end of this period, the government will pay back the loan with a set level of added interest.
Investments into the new green sovereign bonds will be used by the government to fund green energy, tackle climate change and create “green jobs” across the country.
It’s clear that environmental issues are clearly an important topic for the government at the moment, with numerous strategies for tackling climate change and working towards a greener future having been announced over the past year. This is in line with people changing view on environmental issues, with public concern over the environment at an all-time high.