A Beginners Guide to Green Investment

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Green Investing Globe

Financial health warning!  This information is provided in good faith and does not constitute investment advice. You should fully research any of the options mentioned before investing. If you’re unsure, make sure you consult an independent financial advisor.

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?  It’s a complex topic so this page aims to provide you with a good place to start digging. It’s set out under the following main headings:

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.  The term ESG – which stands for Environmental, Social and Governance – is now used widely to describe investments with an ethical or sustainability angle.  The label can be misleading, however, as it covers a huge array of different investments, some of which you might question.  So you need to dig deeper to check which investments actually match your principles, and keep an eye out for ‘greenwash’.  

There’s two main ways of investing in the stock market:

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.  Like in any other sector of the market, individual shares can rocket or plummet, so you need to know what you’re doing and invest according to your risk appetite.

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 hundreds of funds specialising in ethical or green investments.  Fund managers follow widely different investment strategies.

These 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. 

ace40 logoThe Interactive Investor platform provides a long list over 140 different ESG funds, categorised based on which strategy they take.  From within this list they have selected the ii Ace 40 list of forty funds that they particularly recommend based on their ESG credentials. 

The website yourethicalmoney.org also 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 and ESG funds still have substantial investments in oil and gas companies, though most have pulled out from the dirtiest sectors like coal and shale oil.

Returns

So does taking ethical and green investment approach mean sacrificing financial returns?  That was the conventional wisdom ten years ago, as analysts argued that – by definition – it means narrowing your choices and loosing out on some profitable investment opportunities.  But thinking is starting to change as the financial risks of non-sustainable business practices are increasingly being recognised and highlighted.  Here’s a 2020 Guardian article reporting on how environmentally focused investing is becoming mainstream, and ethical investments are outperforming traditional funds.

Investment platforms

You can trade direct in stocks and bonds but most people now use online share trading platforms to simplify the process. Here’s a comparison of the charging structure of some of the mainstream UK trading platforms.  These allow you to choose from the full array of shares and funds on the market.  But most now offer guidance on ESG or ethical investing. Here’s links to the relevant sections on the Interactive InvestorHargreaves Lansdown, and Barclays websites, for example.

There’s also a new generation of stock trading platforms that are popping up, some a specific climate or ESG focus.   It is a rapidly evolving marketplace, as interest in green or ethical investment grows.

Getting independent financial advice

If you are dipping your toe into this area, getting some independent financial advice is a recommended step.  But where do you find an advisor who knows this territory?  The Ethical Investment Association keeps a roster of independent financial advisors who specialise in ethical investment, of which about a dozen are based in the South East.  

Direct positive investments

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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 3-7% 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 the Greening Steyning email newsletter, 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 have diversifyied their investment products over time and now offer 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”. Run on a not for profit basis, they have raised £100M from 20,000 investors since they were founded in 2013.

    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?  Here’s a March 2021 article from the website New Money outlining the current state of play. 

    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 in most rankings based on ethical and green credentials. 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.  The highest scoring banks that do offer current accounts, and have a branch relatively nearby, are

     

    Pensions

    divestmentIf 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 former 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.  

    The divestment movement has focussed a lot of attention to getting public pension funds to lead the way in moving funds out of fossil fuels.  It has been slow progress, with many pension fund managers reluctant to lose out on what the healthly dividends they have historically received from fossil fuel shares.  But with the coal industry in steep decline, and the future of oil and gas looking to be curtailed by climate concerns, even the financial case for staying with fossil fuels is looking weaker every year.  Some fund managers argue that staying with fossil fuel investments and engaging with companies to lobby for change is a better way of exerting influence.  But divestment campaigners argue this is just prolonging the agony and that selling fossil fuel shares sends a stronger signal.  

    A significant breakthrough for the divestment movement came in 2019 when Norway’s $1.1 trillion sovereign wealth fund – that was built up on the profits of oil and gas extraction – chose to divest from companies solely dedicated to oil and gas exploration and production in a bid to shield itself from a long-term fall in oil prices.  Another was in 2020 was when the UK’s largest pension fund, the government-backed National Employment Savings Trust (Nest) scheme with nine million members, decided to ban investments in any companies involved in coal mining, oil from tar sands and arctic drilling.   

    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 UKthe 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 – a campaign to get shareholders voices heard by engaging at company AGMs
    • UK Divest have an online database showing where local authority pension funds have their money invested, and how much are invested in fossil fuels.  West Sussex, for example, still has £129 Million in fossil fuels! Here’s a recent report summarising the situation across the UK. 

    Other useful links

    Here’s some other interesting sites and resources to look at:

    • Morningstar – the financial services reporting service – has some excellent resources on sustainable investment, and publishes regular articles and updates on developments in the market.
    • Financial Times journalist, Alice Ross, has published a very helpful book “Investing to Save the Planet: How your money can make a difference.” She was interviewed in April 2021 as part of Greening Steyning’s Green Books series.  You can watch the video here (link coming).  The book is available from Steyning Bookshop with a 15% discount if you mention Green Books.
    • Good with Money – a well-organised blog site with information on all kinds of positive investments.
    • 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.” 

    Let us know if you come across any other useful resources and we’ll add them to the list.  Email us at: greeningsteyning@gmail.com

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