Invest for yourself and a greener planet

When you think of people investing money, you may well picture every decision coming at the cost of people, communities and the environment. In this scenario, the investors win while the people, communities and environment all lose

It doesn’t have to be like that

When people invest in our Stocks and Shares ISA and Lifetime ISA, OneFamily give them the choice of investing 100% or 35% of that money to benefit the environment. We call this sustainable investing.

How does One Family support the environment?

When we invest in company shares via our Stocks and Shares ISA and Lifetime ISA, we are dedicated to choosing companies which have set an agenda to help tackle climate change.

This rewards and supports those businesses doing the right thing by the planet, while sending a strong message to companies that those with closer alignment to climate change thinking will be rewarded.

What’s the alternative to this approach? It’s simple, you could just continue to support business that aren’t so aligned with climate change thinking and reward their behaviour. This discourages new ways of thinking and more sustainable businesses from getting started.

Instead, by making these responsible investments, more people will be investing in environmentally sustainable companies, making it cheaper for them to operate. Changing the way investment works is a journey, and we view this as the first step to putting pressure on other businesses to start working towards greener ways of operating.

How we define who is in and who is out

The companies you invest in when you take our Stocks and Shares ISA or Lifetime ISA are a select group of (currently) 300 to 400, chosen from over 1,600 of the world’s largest firms in an index called the Morgan Stanley Capital International (MSCI) World Index. The MSCI World Index is used as a common benchmark for global stocks and shares funds, the companies which make up this index come from a wide range of different industries.

sectors-graph

To reach the standards we are hoping for, each organisation is ranked on 5 different factors:

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Carbon intensity

How much carbon emission the company is responsible for, from creating CO2 themselves to relying on a supply chain that creates CO2.

The less, the better.

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Brown Revenues

What proportion of a company’s income comes from non-climate friendly activities, like drilling and mining.

The less, the better.

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Fossil Fuels

How much greenhouse gas emissions would result if the company used its fossil fuel reserves.

The less, the better.

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Green Revenue

What percentage of the company’s overall revenue comes from “green” business activities, such as low-carbon technology and renewable energy production.

The greater, the better.

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Adaptation

Adaptation: How prepared the company is for managing their impact on climate change, by having a strategy and action plan to reduce greenhouse gas emissions.

The more focused on a greener future, the better.

For each of the factors above, we select only the companies most aligned. By selecting across different industry sectors, this gives your investment portfolio the best chance to make returns while making a positive impact on the environment.

Companies must keep striving to be sustainable too, as they are reassessed four times a year. Those who don’t continue to meet our standards may leave while those who become more aligned to the five factors might find themselves included.

Let’s take two car manufacturers as an example

Tesla: They make electric vehicles and produce clean energy.

  • Relatively low carbon intensity
  • Zero brown revenues and fossil fuel reserves
  • 100% green revenues and
  • Strong adaptation score

Honda: They are known mainly as a manufacturer of automobiles, motorcycles, and power equipment.

  • Higher carbon intensity
  • Zero brown revenues and fossil fuel reserves
  • Very low proportion of green revenues
  • Relatively good adaptation score
Honda Logo
Carbon Intensity
Honda Logo
Brown Revenues
Honda Logo
Fossil Fuel Reserves
Honda Logo
Green Revenues
Honda Logo
Adaptation Score
Tesla Logo 56 0.00% 0 100.00% 0.729
Honda Logo 83.4 0.00% 0 3.60% 0.646
Tesla Logo Honda Logo
Carbon intensity
Carbon Intensity
56 83.4
Brown Revenues
Brown Revenues
0.00% 0.00%
Fossil Fuel Reserves
Fossil Fuel Reserves
0 0
Green Revenues
Green Revenues
100.00% 3.60%
Adaptation Score
Adaptation Score
0.729 0.646

Honda aren’t doing too badly, and it looks like they are moving towards green revenues, but they aren’t thriving in a sustainable fashion like Tesla. 100% of Tesla’s revenues come from green business activities, while only 3.6% of Honda’s revenue does. As a result, we don’t invest in Honda at the moment but we do invest in Tesla.

Aligning ourselves with the United Nations Paris Accord

Our processes are designed to align us with the United Nations Paris Accord on Limiting Climate Change. Once a quarter, the selection of companies we choose to invest in are reassessed in order to align the fund with the accord’s goals:

  • Making the carbon intensity of our selection of companies invested in 70% lower than the average score of the overall 1,600+ companies
  • Making the fossil fuels/brown revenues of our selection of companies invested in 90% lower than the average of the overall 1,600+ companies
  • Making the green revenues score of our selection of companies invested in 300% higher than the average score of the overall 1,600+ companies

This ensures your overall investment in the shares of 300-400 companies is making a difference to global climate change whilst being a broad enough portfolio to generate returns.

Why investing green works for your money too

Companies focused on a more sustainable business model with more progressive thinking tend to have more stable earnings and operate more effectively and efficiently.

A 2018 study by risk and portfolio analytics provider Axioma showed that portfolios of investments that are weighted towards forward thinking ways of operating outperformed benchmark portfolios. In a Financial Times interview about the study Axioma’s Director of Index Solutions indicated that companies with better credentials in these areas are better performers, based on the idea that, for instance, environmental problems damage profitability for companies.

This fits in with a growing trend in investing, where companies are judged on their ESG (environmental, social and governance) scores.

Keeping your money away from the really bad guys

The Ten Principles of the United Nations Global Compact asks companies to embrace and support a set of core values in the areas of human rights, labour standards, the environment and anti-corruption. Any companies who have been found to violate these principles are excluded from the list of companies we invest in, as are companies who are involved in controversial weapons. We also won’t invest if a company’s revenues come from 5% or above on thermal coal extraction, arctic oil and gas exploration or oil sands.

We also pay close attention to the Swedish National Pension Funds’ Council on Ethics, which aims to influence companies globally to consider the environment and ethics in the way they operate. The Council publishes a list of companies excluded based on their poor environmental and ethical behaviours. For instance, in 2019 the Brazilian mining company Vale S.A found themselves on this exclusion list after they failed to change behaviours which led to new incidents resulting in multiple fatalities and extensive environmental devastation. Needless to say, if this Council on Ethics excludes a company, so do we.

Why does it matter to us?

At OneFamily we believe that finance isn’t just personal. Every decision we make affects the people we care about most, our communities and the world. That’s why we believe in creating products which do good.

It’s not just our climate-focused investment products which share this ethos, as a company we are focused on supporting individuals and communities. Because we are owned by our customers, we are free to focus on reinvesting our profits to benefit our customers, not shareholders.

That gave us the freedom to set up the OneFamily foundation, which has given £3.5 million to support our customers and their communities since 2015. This includes specific grants to help families and charities struggling through the impact of the Coronavirus pandemic.