COP26: key takeaways for your personal finances

There have never been so many ways to ensure your money is helping to fight climate change rather than fuel it. Katie Binns names just a few.

After the marathon climate summit in Glasgow, the final deal agreed saw some disappointments, yet still aims to keep global temperatures at 1.5C above pre-industrial levels by the end of the century - essential to preventing irreversible climate change.

For investors, there are a few key details to heed. 

First, the decision to phase out coal. Considered the dirtiest fossil fuel, ditching it is required to stay within 1.5C. “While only one part of the fossil-fuel picture, the singling out of coal for gradual elimination is significant,” says Becky O’Connor, head of pensions and savings at interactive investor. “Investors in coal now have more clarity.”

Second, an end to the financing of fossil-fuel energy projects by the end of 2022 by 20 countries, including the UK, and five banks, including the European Investment Bank. Those governments and banks that have signed are estimated to collectively provide $18 billion (£13.4 billion) of finance a year. “If this is cut off, it makes it harder for fossil-fuel companies to continue to grow,” explains O’Connor.

Third, the push from India and China to a watered-down version of the coal commitment, insisting on "phasing down" rather than "phasing out". This means continued uncertainty about whether these countries will align with climate targets. “It doesn’t look like they plan to do so within a time frame that would sufficiently limit global temperature rises,” says O’Connor. “For investors in fossil fuels, the writing is not yet on the wall completely for the value of their holdings.”

• Ethical fund winners and losers since the Paris Agreement
• How ESG index funds and ETFs have fared since Paris Agreement
• Two UK climate change shares I am backing
• ii COP26 hub: see tips, news, comment and analysis from our experts

Actions you can take with your personal finances 

There have never been so many ways to ensure your money is helping to fight climate change rather than fuel it.

Conduct an energy transition audit of your pensions and ISAs. Do you have holdings in coal, oil and gas that you are concerned about? “There are a number of alternative clean energy funds, trusts, ETFs and other stocks you can invest in,” says O’Connor. VT Gravis Clean Energy Income Fund and iShares Global Clean Energy ETF are two examples, both on interactive investor’s ACE 40 list of rated ethical funds. 

Check how your pension is invested. The free tool isitgreen.org allows you to simply input the name of your personal or workplace pension fund and get a rating from one to five stars based on sustainability and financial performance.

Consider switching your current and old workplace pensions to a sustainable option. Most providers should offer an “ethical” option which you can easily switch to. If you’re a member of a defined benefit pension, contact the pension trustees to find out where the funds are invested.

Self-invested personal pensions (SIPPs) allow you to pick your own green investments for your retirement savings. ii explains more on green investing via your pension, how to pick investments and encourage your pension provider to move to net zero.

Your bank account also finances climate change via the businesses the bank invests in. Yes, the money in your account is mostly paying your mortgage, bills and Deliveroo habit but, while it isn’t paying those things, it is probably funding coal, oil, fracking and deforestation. Current accounts with Triodos Bank, Starling Bank and the Cumberland Building Society are highly rated by ethical finance website Good With Money. 

• NS&I green bond disappoints: here are some much better alternatives
• Bill Ackman: an industry as certain as food and oxygen
• Don't be shy, ask ii...will I make more money investing ethically?

Banks and building societies which offer ethical products including savings accounts and ISAs, according to financial analyst Moneyfacts, include: Charity Bank, Ecology Building Society, Tandem Bank and Gatehouse Bank. “Building societies are local, mutual lending and saving institutions that do not invest in global energy companies and so offer a way to avoid that exposure if you are worried about it in the meantime,” adds O’Connor. There are other green savings options too, such as NS&I’s three-year green bond and green investment bonds that offer a defined return and diversity to a portfolio. 

Also consider setting aside money to decarbonise your home. COP26’s talks on the issue did not get the biggest headlines, yet UK homes produce nearly one-fifth of the country’s carbon output and the government’s plan has so far been lacking. The green homes grant – launched last year to help homeowners pay for energy saving improvements – was scrapped after just six months after builders complained about red tape and homeowners who applied failed to get a response.

A new scheme - the Boiler Upgrade Scheme - will launch in April 2022 but it’s unlikely government funding will cover all costs so start budgeting for them. Gas boilers will have to be replaced with heat pumps, possibly hydrogen systems, for example, and homes will need loft, window and wall insulation. 

• Proof from a pro that green investing does not sacrifice returns
• Five things investors must know about Britain’s energy crisis
• Take control of your retirement planning with our award-winning, low-cost Self-Invested Personal Pension (SIPP)

Talk to your friends, family and colleagues: ask if their personal finances are working to protect the planet. Money is a taboo subject, but most people care about climate change and will likely appreciate a point in the right direction to do a bit better by the planet.