How can you save and invest more responsibly? (updated)

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Expat Saving & Investing workshops 101 & 102 – learn everything you need to know to invest sensibly and start making your money work hard for you.
“Every attendee that I’ve spoken to has loved Steve’s workshop.” – Andrew Hallam, author of Millionaire Expat
“Probably the most important workshop of my life.” – Julian Labuschagne, Dubai
“One of the best things I’ve ever done.” – Alison Soltani, Al Ain
Next Dubai workshops: Fri/Sat  10-11 or 24/25 January  GET YOUR 2020s OFF TO A FLYING START!

Scroll down for some great tips on how to help the planet now!

In my weekend Expat Saving & Investing workshop, there’s a brief section where we talk about socially responsible investing. In honour of the Global Climate Strikes on 20 and 27 September 2019, I thought I would dig into that a little deeper and how it might impact your future financial independence. If you’re a proud petrochemical employee and/or climate change denier, there’s no need to close this article in disgust (strengthening your filter bubble so you only hear from people who agree with you). Acting on just one of the ideas below might put more money in your pocket. I’m going to go through the 10 Steps to Financial Independence that I use on my website and workshops, to see where we might each be able to make a positive or (at least) less negative impact on the planet. Voting Your actions do make a difference. You have three ways you can vote every day – by deciding how you spend:
  1. your money
  2. your time
  3. your energy.
Many people forget this and become passive, stuck in routines and habits, accepting of a not-so-great life and a not-so-small carbon footprint. Because that’s modern living, right? Well not anymore. You didn’t open this to receive bland platitudes from me that will make you feel better. You expect a good dousing of cold, hard truth every so often, to wake you up and hopefully wake up the neighbours too. Your daily votes matter. So I want you to start allocating your money, time and energy with conscious intent – for the benefit of your future self and the planet. This starts now. The time for pissing about is truly over. Act now Many of us live in oil-based economies that also have massive solar potential. Given fossil fuels will likely have to remain in the ground if we are to curb our unsustainable appetite for energy, a painful transition to solar power and non-oil income will be needed. Does that mean we get to sit on our oily hands waiting for governments to act? No. There are always things that you can do. Cheat days and mistakes are allowed. Just as one step towards financial independence is beneficial, one step towards being more responsible is still a step in the right direction. We don’t have much time to act though, so challenge yourself a bit. You are more resilient and more creative than you think. I spent a couple of hours on the weekend not looking at my phone but instead thinking up 10 initiatives that could make a difference. It was surprisingly fun and easy, once you get away from everyday life. Priorities The first priority is to inform yourself – what is going on and what can you do to help? Learn what will really make an impact and what is just ‘greenwashing’. A very accessible overview of all the problems and solutions mankind has to tackle simultaneously is given in the book ‘There is No Planet B’ by Mike Berners-Lee (the brother of the chap who invented the internet). It’s then my job to show you how to manage your money responsibly, freeing up your time and energy to make an impact on the world. Let’s see where we might each be able to make a positive or less negative impact on our planet A. 1. Sort out your mindset Money, being intangible, is prone to all sorts of delusions and weird biases from deep in our brain, often inherited from our parents. What is your mindset towards climate change, pollution and loss of biodiversity? Wherever you end up on this, I encourage you not to have an “I don’t know, I’m too busy” approach. I went to an Extinction Rebellion lecture last month in my sleepy hometown in the south of England (surprisingly packed – this movement is going places). On the sign-up form, a couple of questions made me really look within: ‘Are you willing to be arrested?’ ‘Are you willing to go to prison?’ No messing around – those are questions that merit some serious thought. So here are some positions you can adopt: – All this planet talk is liberal garbage (the weight of evidence suggests you are wrong, but hey it’s your opinion) – I’m too small to make a difference (again, you are probably wrong on that) and I live in an oil-driven country so go hassle them first – I care about the planet… but when it comes to fun/comfort/business/family I guess I just don’t care enough – I’m going to try to adapt all aspects of my life slowly towards being more environmentally friendly – I’m going to be radical about this, so that when my grandchildren ask me what I did during the biggest challenge of our time, I can hold my head up high What are you prepared to do? Be conscious and do it with intention. How much money, time and energy will you devote to activities that make a difference? How much company time and money will you allow your staff to do likewise? How many people and companies will you talk to about what can be done or tell off for doing the wrong thing? Are you prepared to accept lower returns for doing the right thing? Flex your complaining muscles. Complain every time you receive a straw. Complain to the manager every time you walk past an open freezer in the supermarket. Create your own carbon tax via pitchforks and nagging. Will you stick with all this when times (and people) get difficult? Discipline is important – for your net worth and for the earth. 2. Track your net worth 3. Track your savings rate If you track your net worth and your savings rate regularly, they will both improve over time. The act of tracking your expenses will increase your awareness of impulse purchases and the aggregation of lots of food deliveries. You can do the same for your environment if your track your carbon footprint (thanks DEWA), and reduce your intake of foods that have been flown in from very far away. I didn’t say this would be easy! You can minimise the number of deliveries you order (saving money also) to reduce the mountains of waste they generate. You can buy a water filter so you’re not piling up plastic bottles. And you can eat less beef – which generates 2.5x more greenhouse gases than lamb, 8x more than pork or chicken and 25x more than lentils. Remember: first reduce usage, then re-use, then recycle. If you have a property back home, make sure the electricity and gas are being provided by a green energy company that is investing in renewables (such as Ecotricity and Good Energy in the UK). Strongly encourage your tenants to do so too. 4. Set your financial goals I always say you need to adjust your savings rate and happiness levels based on how well you are proceeding towards your target retirement portfolio. Are you willing to change your goals and your speed towards them to reduce your ecological footprint? To buy an electric vehicle or remove that fast-growing but polluting stock from your portfolio? Some actions, such as flying less and cooking at home more, will help the environment and your savings rate. Other decisions may force you to choose between wallet and planet. Do it consciously. Where you choose to live or retire makes a difference too. A typical American uses nearly 4x energy per year compared to the global average. For a typical European it is 2x. You can move to a country that is less reliant on air travel and air conditioning if you really care. Or you can invest money or time into tech that will help reduce the impact of both (more on that later). 5. Pay off all expensive debt When you have a debt problem – a large credit card balance or a high-interest mortgage on a devaluing property – you’re not going to have the bandwidth to think about much else. And you’re not going to have the financial means to make choices. So you’re probably not going to be much use to the planet. Make a plan, get out of debt and then gradually become the person you were put on this earth to be. You’re taking up space, so you might as well make the best of it! There are some ‘green’ mortgages out there, including discounts for new-build, energy-efficient properties. However, as expats it may be hard to get access to these mortgages, even when buying property in our home countries. 6. Build a cash buffer 7. Plan short-term investments When you deposit money with a bank, it’s easy to forget that the bank promptly lends it out to a company. What if it’s a gun manufacturer or heavy polluter? The bank and the evil company are undoing all the good you have done by dutifully recycling all your pizza boxes. A cash buffer, education fund or house deposit represent a big chunk of your money and therefore a sizeable vote. There are now banks that only lend money to good causes or impactful projects (see Charity Bank in the UK and Triodos in the UK & Holland). I was astonished to discover this – why isn’t it more common? It’s something you won’t forget once you know it exists. If you can’t get access to one of these banks, contact your own local bank and suggest/demand that they start collecting deposits ringfenced for good causes. They’ll give you lots of excuses, but the right bank will spot an opportunity. Many of us are happy to pay a little bit more or get a little less if it makes a difference to others. And before you set some money aside for your new car or new house, stop and think – do you really need it? Or is it your ego talking? What if you give that money to an impactful cause (look up Effective Altruism) instead? Or what if you use it to reach financial independence faster, so you have more time to give back to the world? 8. Grow long-term investments Responsible investing has been lurking around for decades trying to be taken seriously but now it is HOT. Long thought to be more expensive and under-performing, costs have been plummeting and there is some evidence to suggest the shares of responsible companies actually outperform the market. ‘Multicapitalism’ and the ‘triple bottom line’ suggest that economic capital (i.e. money) is now being increasingly considered alongside social capital (i.e. humans) and environmental capital. If you are making lots of money but making workers miserable in China or destroying the rainforest, then your company’s future cashflow is at risk. Because increasingly social and economic damage are unacceptable to consumers, other businesses and governments. Responsible investing therefore revolves around ‘ESG’ ratings: Environment: minimising a negative impact, boosting a positive impact Social: good treatment of customers, employees, supplier and other stakeholders Governance: appropriate leadership, board oversight, executive compensation and shareholder rights What is appropriate you may ask? Well that is the problem. It’s all very subjective and hard to measure consistently. Things are improving though, with major companies like Bloomberg and Morningstar displaying sustainability ratings. However rough it is, ESG is here to stay. Most people over 40 would say a company’s primary task is to make money. Most Millennials would say it’s to have a positive impact on people and the world. That’s a big difference. In August 2019, nearly 200 CEOs of major US corporations signed a statement saying that creating shareholder value by maximising profit is no longer the primary goal of their company. I have resisted investing in and promoting ESG funds, because I felt the metrics were too vague and too variable from one rating company to another. You may well find controversial businesses like oil companies included, because they spend the most on renewable energy or because they are the best in their sector. Weapons manufacturers may sneak in, because they treat their staff well (otherwise who would work for them?). But I think it’s time to take ESG funds seriously. Investing in ESG funds is a vote for taking ESG seriously, for improving ESG ratings and for abandoning poor performers. As pension funds, institutions and individual investors start to shun these companies, they will be forced to change or lose the ability to raise money easily in the stock market. So what to invest in? Non-US expats still need low-fee, globally-diversified, index-tracking Exchange-Traded Funds (ETFs), ideally domiciled in Ireland. This sentence alone still has the power to transform your finanical future. At the moment, the huge fund manager iShares by BlackRock is wiping the floor with its competitor Vanguard when it comes to giving us the sustainable UCITS (Irish-domiciled) ETFs that we need. In the past year, iShares has done an amazing job of creating ESG UCITS ETFs (that’s a lot of acronyms) and, most impressively, at the same low price as their standard, non-ESG cousins. Usually, I am a big fan of, and invested in, the Vanguard FTSE All World UCITS ETF (VWRA or VWRD), which covers 3,267 large and medium-sized companies in 47 countries for 0.25% per year. To get the iShares equivalent, you need to invest in both the iShares Core MSCI World UCITS ETF (SWDA 0.2% accumulating) and the iShares Core MSCI Emerging Markets IMI UCITS ETF (EIMI/EIMU 0.18%). Now iShares has created 3 ESG levels for both of these, based on ESG ratings from MSCI. They have a fantastically clear section of their website exploring sustainable investing and explaining the differences between their funds. ESG Screened: only removes controversial business sectors (controversial weapons, nuclear weapons, tobacco, thermal coal, oil sands, UN Global Compact violators and civilian firearms). ESG Enhanced: then removes controversial companies as well and reweights all the remaining companies based on ESG scores, without getting too far away from the benchmark index’s performance (constraining the tracking error). SRI (Socially Responsible Investing): abandons trying to track the index and picks the top 25% of companies in each acceptable business sector, based on ESG score and company values.   ESG Enhanced is probably ok for your core portfolio, but SRI is getting a bit away from the core global stock market in terms of composition and performance – you might not want to have it as 100% of your stock allocation. So for Core MSCI World you have: – iShares MSCI World ESG Screened UCITS ETF USD (SAWD Acc. SDWD Dist., 0.2%) – iShares MSCI World ESG Enhanced UCITS ETF USD (EDMW Acc. EEWD Dist., 0.2%) – iShares MSCI World SRI UCITS ETF USD (SUWS – Distributing, 0.3%) And for Core MSCI EM you have: – iShares MSCI EM IMI ESG Screened UCITS ETF USD (SAEM Acc. SEDM Dist., 0.18%) – iShares MSCI EM ESG Enhanced UCITS ETF USD (doesn’t seem to be available yet) – iShares MSCI EM SRI UCITS ETF USD (SUSM Acc. SEMD Dist., 0.35%) None of these ESG funds have been around long enough to establish much of a track record against their benchmark index. However, more and more studies are showing that, at least in the past few years, portfolios with higher ESG ratings have outperformed their benchmarks in the US and Europe. Bonds iShares has a couple of ESG UCITS corporate bond funds (e.g. SUSU), but I would typically recommend shorter-term government bonds for your bond allocation to provide downside protection. MSCI does rate governments’ exposure to ESG levels, but it hasn’t been applied to a bond UCITS ETF yet… 9. Review pensions, tax & insurance As with your own portfolio, check what your pension funds are invested in. Not many pension providers offer ESG funds, but that is changing. If you don’t have a choice of funds, get your company to show how the pension is invested and how they justify investment in any controversial sectors or companies. They will likely not act on this until staff bring it to their attention and insist it is a problem. Source insurance and tax advice from companies in the region and back home that have a good reputation for ethics and fiduciary responsibility, especially if they also advise on investments. I hardly need to say that you should avoid those advisory firms flogging complex savings plans, pension transfers and whole life insurance to expats for a big commission. 10. Revisit all previous steps More and more responsible products, services, companies and government initiatives are appearing. Keep an eye open for them and revisit your choices every couple of years. Your life stage will change. The urgency of our planetary problems will change. There will be more to think about, more pain, more progress, more hope. Vote wisely.

How to help the planet NOW – some practical ideas

First educate yourself so you can talk to others about the planet’s problems and potential solutions. Then…

Possible actions for governments to achieve net zero carbon emissions:
💡 Support renewable energy
💰 Cut fossil fuel subsidies
🌳 Reforest the country
🌱 Promote low emission farming and diet
💸 Tax fossil fuel use (including aviation fuel)
🚃 Support electric cars and public transport
🛠 Enforce building regulations and support retrofitting
🇪🇺 Support the EU Emissions Trading Scheme

Possible individual climate actions:
🗣 Talk about it, to everyone
🌱 Switch to a more vegetarian or vegan diet
🔌 Switch to a renewable energy supplier
♻️ Reduce, reuse and recycle more
🚗 Use cars less or get an electric/hybrid car
🛬 Stop flying – if you must then offset
💵 Divest your pensions from fossil fuels
✊ Protest and vote

Tips courtesy of Professor Mark Maslin and Ben Keene.

Have any questions or comments? Add them below. Thanks to Laura Whateley and her handy book ‘Money: A User’s Guide’ (ideal for people living in the UK) for lots of ideas about how to save and invest sustainably.

Expat Saving & Investing workshops 101 & 102 – learn everything you need to know to invest sensibly and start making your money work hard for you.
“Every attendee that I’ve spoken to has loved Steve’s workshop.” – Andrew Hallam, author of Millionaire Expat
“Probably the most important workshop of my life.” – Julian Labuschagne, Dubai
“One of the best things I’ve ever done.” – Alison Soltani, Al Ain
Next Dubai workshops: Fri/Sat  10-11 or 24/25 January  GET YOUR 2020s OFF TO A FLYING START!

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