Innovations in ethical investment
It wasn't so long ago that businesses and consumers wanting to invest ethically had just a few funds to choose from. Now there are hundreds, and other investment opportunities, such as peer-to-peer lending, mean that investors really do have more choice than ever before. According to the research body EIRIS, more than £13.5 billion was invested in UK green and ethical retail funds in 2014.
Concern about financial return is often one of the main reasons people give for not investing ethically, as Cris Iles-Wright of Barchester Green Investment explains, "Some people assume that you have to choose between financial performance and ethics, but there is no convincing evidence that ethical investments underperform. Considering social and environmental factors can align your investment with well-managed companies and key investment themes of the future, so sustainable funds have every chance of outperforming traditional investments."
There are three main approaches to ethical investment:
· Negative screening, whereby you decide what types of businesses you don't want to support, such as armaments companies, animal testing facilities and so forth.
· Positive screening, whereby you actively seek to invest money in organisations that you feel can make a positive contribution to communities, the environment or society as a whole, such as healthcare providers, organic farms and renewable technology developers.
· Shareholder engagement, whereby shareholders or fund managers aim to positively influence businesses on areas such as carbon emissions and labour rights.
Many investors choose a combination of the three. Financial advisers, such as The Ethical Investment Co-operative, can work with investors to draws up an ethical profile determining the types of businesses to include in a portfolio.
Online investing is also becoming increasingly popular, giving consumers and businesses the opportunity to easily review the performance of their investments. Along with traditional fund investment, you may wish to consider peer-to-peer lending.
Peer-to-peer lending, whereby lenders are connected directly with businesses or consumers needing funding, has really taken off over the last few years. According to Nesta, the UK market was worth almost £1.3 billion in 2014, compared to £480 million in 2013.
Peer-to-peer lending can offer a good long-term investment. Funding Circle, for example, offer a current estimated return of 7% per year. Most investors diversify their portfolio to minimise the risks, with one in four peer-to-peer business lenders loaning money to more than 100 businesses.
Self-selecting more than 100 businesses does take time, so some peer-to-peer sites will automatically create your portfolio for you, if you wish. You should keep in mind that not all businesses requiring loans will meet your ethical criteria, however.
Along with business loans, you can lend money to consumers, through websites such as Zopa. While this sounds risky, Zopa's Safeguard fund covers bad loans, meaning that, in the last 10 years, none of their lenders have lost money.
Investing in renewable energy
There has been a considerable amount of pressure on organisations to divest from fossil fuels in recent years. You could choose to go one step further, by directly investing in renewable energy schemes, including community co-operatives. There are various ways of investing, including buying shares and lending money through a long-term bond or debenture. You could even support a scheme that's of particular relevance to your members. For example, a housing co-operative could buy shares in a local community energy project whose profits will be partially used to alleviate fuel poverty.
Community share offers can be found on www.shares.coop, although the easier option is investing via an independent site, such as Ethex, Abundance or Trillion Fund, who will have already taken some of the necessary precautions in assessing the viability of each venture.
According to Fionn Travers-Smith, Spokesman from Move Your Money, "As well as having social and environmental benefits, community energy projects can be a prudent investment. Renewables benefit from Feed in Tariffs for the first 20 years, so they can offer a fair return on your money. Indeed, many direct investments in renewable energy even offer market-beating rates, making them well worth your consideration."
Fixed interest deposit/savings accounts and cash ISAs
As with most stocks and shares investments, the options listed above are not usually covered by the Financial Services Compensation Scheme. Those who favour risk-free saving, over high financial returns, may prefer to opt for a fixed interest deposit or savings account, or a cash ISA. Ethical options are available through Triodos, The Co-operative Bank and Charity Bank.
Move Your Money (ethical finance campaign site, with lots of useful information) – http://moveyourmoney.org.uk
UK Sustainable Investment and Finance Association – www.uksif.org
Ethical Investment Association (to find a personal financial advisor) – http://ethicalinvestment.org.uk
Ethical Consumer (guides and resources on ethical consumerism) – www.ethicalconsumer.org
Your Ethical Money – www.yourethicalmoney.org
EIRIS (provider of environmental, social and governance research for responsible investors) – www.eiris.org/
Please note that the author and Co-operative News are not linked to any of the organisations mentioned and cannot accept responsibility for the advice given.