What are the options?
If you want to use your savings to achieve something positive for the environment and society, what are the options and how do you go about it? This page aims to provide you with a good place to start. It’s set out under the following headings:
- Investing in the stock market
- Direct positive investments
- Your bank account
- Peer-to-peer lending
- Other useful websites
Investing in the stock market
Investing in companies that respect the planet and are geared towards ethical and sustainable business practices – backing the good guys – is one important way of putting your money to good use. There’s two main ways of doing this:
The DIY route is to choose the companies yourself; you do the research and make up your own mind on the green or ethical credentials of the company, and when to buy and sell. You can trade direct in stocks and bonds or use share trading platforms to simplify the process. Here’s a comparison of different UK trading platforms. Brokerchooser compares Europe-wide platforms.
Green and ethical funds provide an alternative route, where you are trusting a fund manager to make the decisions on your behalf – in exchange for a management fee. Ethical funds date back to 1984 when Friends Provident launched the first UK ethical fund. The market has diversified significantly since then, and these days there are nearly 100 funds specialising in ethical or green investments.
Fund managers follow widely different investment approaches, so don’t assume that just because a fund has ‘ethical’ in its title that means it matches your ethics. Approaches include:
- Screening out worst offenders – particularly polluting companies, or sectors like arm trading and animal testing.
- Screening in companies for their positive contribution to society and the environment.
- Choosing ‘best in class’ in specific sectors – so if you’re choosing an oil company, you choose the most positively oriented ones, not the worst offenders.
- Engagement with companies they invest in to encourage them to improve their practices, but still investing in them.
The website yourethicalmoney.org provides a table listing over 70 different funds, and the issues they specialise in – including climate change, environment, nuclear power, and intensive farming. But you have to dig deeper to find out the details of individual funds’ investment policies. It is surprising how many ethical funds still have substantial investments in oil and gas companies, though most have pulled out from the dirtiest sectors like coal and shale oil. Here’s a 2015 Guardian article reporting on some of the winners and villains of the ethical investment market.
The Ethex Positive Investing Report in 2015 provides an overview of the sector and lists five of the leading ‘positive investment funds’, all with a strong focus on climate change:
- IMPAX Environmental Markets (with £380M invested in 2015)
- Triodos Sustainable Pioneer Fund (£110M)
- WHEB Sustainability Fund (£83M) – check out their blog to learn more about the approach they take
- Threadneedle Social Bond Fund (£68M)
- Quilter Cheviot Climate Assets (£32M)
Another useful source is the 3D Investing list created by Blue and Green Tomorrow – a website that describes itself as “a digital resource that balances the needs of the planet, its people and prosperity without prejudice, scaremongering or Greenwash.” . This gives a star rating to over 150 ethical and environment-related funds, totalling £47 Billion in assets. Latest results and performance figures are in their Guide to Sustainable Investment 2016.
Direct positive investments
These days there’s a whole range of options for investing directly in small cooperatives, renewables projects, and other socially responsible initiatives. Various groups around the country open up share or bond offers from time to time to raise funds for projects, offering investors the chance to get in on the ground floor and put their money where their ethics are.
These are a very different kettle of fish compared to stock market investments:
- The investments are much smaller – projects typically range from a £10,000 to a few million.
- You know exactly where your funds are going, rather than them being absorbed into big fund management portfolios or corporate investment coffers.
- You can meet the people behind the schemes, attend AGMs, and get involved directly if you wish (you can do this with publicly limited companies, too, but you’ll be a minnow in the room compared to the big institutional investors).
- Financial rewards vary between schemes. Usually they quote a target return on investment – typically in the range of 4-7% per annum.
- Some projects are also eligible for the government’s Enterprise Investment Scheme (EIS). Designed to encourage small businesses, this gives investors tax relief of 30% on the entire sum invested – which provides a tasty additional incentive to put your money in.
- In surveys, many investors say they are more interested in the social and environmental return on investment rather than the financial one. They are doing it for their community, their grandchildren, or the planet, rather than their wallet.
- Money is usually locked up for a set period. For some bond offers it may be 3-6 years. For renewable schemes, it is typically 20-25 years. So these should be seen as long term investments.
- Shares are not tradable in the same was as stock market investments are, though there are usually discretionary mechanisms for withdrawing funds if you need get them out, and you can pass them on in your will, usually tax free.
- The risk profile of these schemes is very different from investing in a well-established company or fund, so you need to look into them carefully. Most agree it would be unwise to put too much in any one scheme.
How to find out about new positive investment schemes?
We flag up local investment opportunities via our Steyning 10:10 email updates so sign up if you’d like to receive them. We’re part of Community Energy South – an alliance of local community energy groups that have been behind a series of solar energy share offers in the last few years – so we get to hear of local solar schemes as soon as they are announced.
There are also a number of investment platforms that specialise in promoting positive investment schemes, and allow you to hear about and invest in schemes all over the country. One of the advantages of investing via these platforms is that they do ‘due diligence’ on the schemes they promote, so offer an additional element of confidence for investors.
- Abundance is a platform set up in 2012 that allows you to buy and sell ‘debentures’ (a type of loan, as opposed to a share) in a range of renewable energy projects, and “offers the chance to match financial returns with ethical values”. It provides investors with a dashboard showing the status of all their individual project investments, and prepares consolidated information to submit with your tax return. Registered with the Financial Services Authority, they are diversifying their investment products over time and have recently launched an ISA and a pension portfolio option.
- Ethex offers a similar service but covers a wider range of investment opportunities, including social housing, charity bonds, fair trade projects, social enterprises, and a variety of other positive initiatives. They describe themselves as “building a vibrant community of investors and businesses working to make money do good”. “We are creating a conversation about positive investment and how we can make it something that everyone does, as part of their everyday investment practices”. They have raised £49M from 10,000 investors since they were founded in 2013.
- Mongoose Energy is the most recent creation, and was set up in 2015 by Bath and West Community Energy, one of the most successful community energy initiatives on the West country. It specialises in supporting community energy schemes, helping to market their share offers as well as providing hands on practical support.
The pipeline of solar and onshore wind project of this kind has dried up considerably in 2016, since the government slashed feed-in tariff rates and removed EIS incentives on community solar schemes. This was a major blow to the sector. But the activists and pioneers behind this are not taking this lying down. As prices of solar and wind technology come down, new avenues are opening up, and there are exciting opportunities for positive investing emerging in areas other than renewables.
Your Bank Account
Nearly all of us have a bank account. But not all banks behave the same. How can you be sure your bank is acting in a way that’s consistent with your ethical and environmental stance, and not funding strip mining, tar sands and other nasties? One of the best ways to learn more is from the website MoveYourMoney.org.uk They’ve published a scorecard that rates banks on five criteria:
- Customer service
- Support for the local economy (as opposed to ‘casino banking’)
The best known ‘High Street banks’ (not many in our High Street these days!) like HSBC, Barclays, Nat West, Lloyds and RBS, all score badly and come near the bottom of the list. The banks that come out top are ‘challenger banks’, like:
All of these offer a variety of savings accounts and ISAs. The catch is that none have a national network of branches, and only Triodos offers a current account (launched in April 2017). The highest scoring banks that do offer current accounts, and have a branch relatively nearby, are
- Newly established Metro Bank (Brighton)
- Dutch bank Handelsbanken (Brighton)
- Nationwide (Lancing)
- Britannia (Worthing/Brighton)
- Cooperative Bank/Smile (Worthing/Brighton)
According to Wikipedia “Peer-to-peer (P2P) lending is the practice of lending money to individuals or businesses through online services that match lenders directly with borrowers. Since the peer-to-peer lending companies offering these services operate entirely online, they can run with lower overhead and provide the service more cheaply than traditional financial institutions. As a result, lenders often earn higher returns compared to savings and investment products offered by banks, while borrowers can borrow money at lower interest rates, even after the P2P lending company has taken a fee for providing the match-making platform and credit checking the borrower.”
Here’s an introduction on how they work from the website MoneySavingExpert.com . And here’s a helpful infographic on the pros and cons of P2P lending for small businesses from the Norwich University Business School in the US, and a blog article on the US-based LedEdu site comparing different business lending platforms. There’s a whole range of P2P lending platforms around these days, all with their own distinctive approach. The sector is now well established and regulated by the Financial Services Authority. Some of the largest and best known platforms in the UK are:
- Zopa – set up in 2005, has 83,000 lenders and has made more than £1.8 Billion in loans (by 2016)
- Funding Circle – established in 2012, has 54,000 lenders has has lent £1.6 Billion
- Ratesetter – set up in 2010, has 46,000 lenders and has lent over £1.5 Billion
- Assetz Capital – was set up in 2013. They offer a range of investment accounts, specialising in different sectors, and with different rates of return. This includes a Green Energy Income Account offering a target interest of 7%, which allows investors to spread their funds across a series of green energy projects.
The interest rates offered to lenders vary from 2.5% to over 7%, depending on the level of risk you’re prepared to take on. You can usually withdraw funds at any stage. Note that there is no automatic ethical or environmental dimension of most Peer-to-Peer lending platforms, unless it’s specifically mentioned. That’s not their primary selling point. It’s more about providing an alternative to the big banks that works better for investors and borrowers. And lenders are not covered by the government’s Financial Compensation Scheme.
If you’re lucky enough to have a pension, do you have you any idea where it’s invested? The chances are that a large part of it is sunk in the fossil fuel sector, which until recently was seen a safe bet – offering good dividends and long term security. This was before people clocked that two thirds of current fossil fuel reserves need to be kept ‘in the ground’ if we are to avoid climate disaster. These ‘stranded assets’ have been flagged by Bank of England Director, Mark Carney, and a huge problem for the fossil fuel sector – making it a much riskier investment proposition, not to mention such a polluting one.
The Divestment movement has been gathering pace since it started out in US university campuses in 2012. It is all about removing investments from dirty fossil fuel companies, and reinvesting in cleaner and more sustainable alternatives. The campaigning focus up to now has been on assets owned by public bodies and charities – for example the investments of universities, pension schemes and charitable foundations (like the Wellcome Trust). But the concept applies equally to personal and company investments.
Here’s where you can find out more, and put pressure on your pension fund to divest:
- A Guardian Article on how to get your pension fund to divest, part of their ‘Keep it in the Ground’ campaign
- Fossil Free UK: the UK site for the global divestment movement
- Bright Now, campaign for fossil free churches
- Quakers and divestment: a introductions to why and how the Quakers took the lead on divestment in the UK
- ShareAction, GreenLight campaign a campaign to get shareholders voices heard
- Move Your Money guide to fossil free banking
- Community Reinvest – a site that reveals details of where local authority pension funds have their money invested. West Sussex, for example, has £121 Million in fossil fuels!
- BesttoDivest – an online resource outlining the case for divestment, produced by the Brighthelm Centre, based in Brighton, which was the first UK church to divest.
Other useful links
Here’s some other interesting sites and resources to look at:
- A presentation on Sustainable Investing by Seb Beloe, of WHEB Asset Management, given at the Special Seminar on Green Investment held in Steyning on 30 November 2016
- A talk on Community Owned Renewable Energy by Damian Tow, of Brighton Energy Coop, at the same seminar
- Good with Money – a well-organised blog site with information on all kinds of positive investments.
Let us know if you come across any other useful resources and we’ll add them to the list. Email us at: firstname.lastname@example.org